ByteDance is wooing lenders for a US$9.5bn refinancing despite a looming US ban on its short video app TikTok, setting the stage for the return of Chinese technology firms to the syndicated loan market as they emerge from a years-long regulatory crackdown.
Citigroup, Goldman Sachs and JP Morgan are coordinators on the deal and a host of other banks are processing approvals to participate in what is the largest offshore loan from China’s technology, media, and telecommunications industry with the aim of cementing their relationships with one of the fastest-growing companies in the country.
ByteDance’s explosive financial performance – according to market participants the private firm's profits surged around 60% to more than US$40bn in 2023, significantly outpacing the likes of Alibaba and Tencent – is outweighing any concerns lenders have about its legal challenges in the US. In April, US lawmakers, citing national security concerns, voted to ban TikTok in the country unless ByteDance sells the app within nine months.
As any prospective new owner would need to access ByteDance's algorithms to keep TikTok running, which the US would not allow, Reuters reported at the time that a sale of the app was highly unlikely and that ByteDance would prefer to shut down TikTok in the US rather than sell it.
Nevertheless, lenders remain generally unfazed, as Douyin, the Chinese sister app of TikTok, is the company's primary revenue generator for the company and continues to disrupt e-commerce in China through its use of live streams.
“Douyin is occupying the lion's share of China's lucrative e-commerce market for its live streaming feature,” said a senior loan banker from a Chinese bank. “We have confidence in its future prospects as the platform is popular among users of diverse ages, including the elderly who seek connection and companionship.”
Competitive terms
For those reasons, ByteDance’s loan carries competitive terms with an interest margin of around 85bp over SOFR for a three-year portion and around 90bp for the five-year piece, according to a source familiar with the matter.
“We have a very close relationship with ByteDance as we have been very supportive of bilateral loans for its onshore units for years,” said a second senior loan banker from a Chinese bank. “The client approached us initially for indicative terms, and the pricing is much tighter than our indicative pricing. But it is understandable because the top-tier name obviously has the strong bargaining power as we are all hungry for good assets. We also have to maintain the relationship for potential future lending businesses.”
By comparison, Alipay, the digital payments unit of Ant Group, which in turn is an affiliate of Alibaba, recently closed a US$6.5bn borrowing comprising three-year loans of US$5.5bn and US$1bn that paid all-in pricing of 100.5bp based on interest margins of 88bp over SOFR/CNH Hibor. The US$5.5bn facility has a two-year extension option, and if exercised it will take the loan’s all-in pricing to 110.5bp.
ByteDance is not sharing audited financial statements with potential lenders. Bankers involved in the loan process are only provided the financials necessary for credit approvals, which must be deleted afterwards as the company is highly sensitive about information disclosure.
"ByteDance has been doing this for years for its previous loans, and the strict confidentiality is understandable given it is not yet listed and may have IPO plans at a later time," said a third loan banker from a Chinese bank.
The company is also selective when choosing its lenders. According to banking sources, reverse enquiries from interested lenders that are not in the selected list are turned down.
Turning point
ByteDance’s latest borrowing is part of a broader rebound in offshore financing for China’s TMT sector after Beijing eased regulatory pressures and ended a sector-wide crackdown that began in November 2020.
The enormous size of the borrowing will drive loan volumes from Chinese TMT companies this year to at least US$17bn. Loan activity in the sector peaked at US$22.35bn in 2021, before nosediving to US$13.88bn and US$6.56bn in 2022 and 2023, respectively, according to LSEG LPC data.
“The current momentum in fundraising activities suggests a potential turning point for the sector, especially as major players seek to enhance their capital structures and fund strategic initiatives,” said a Hong Kong-based loan banker at an international bank.
In July last year, the National Development and Reform Commission, China's top economic planner, vowed to support major internet platform operators by giving the green light to more technology deals.
“We have strong appetite in China’s TMT sector with the country’s rapid advancements in artificial intelligence technologies,” said a second Hong Kong-based loan banker. “This is evident from financial reports from multiple Chinese tech giants like Alibaba and Tencent, with the booming AI sector highlighting their future business strategies.”
Proceeds from the latest deal will be used to refinance a US$5bn three-year borrowing from December 2021, as well as for general corporate purpose. The existing borrowing is split equally into a term loan and a revolving credit facility, according to LSEG LPC data.
JP Morgan was the mandated lead arranger and bookrunner of the facility, which attracted 16 other Chinese and international lenders, including Bank of China, Goldman Sachs, HSBC, Industrial and Commercial Bank of China, Standard Chartered and UBS.