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Tencent sells US$5b bond, drawing comparison to Alibaba

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Tencent Holdings sold US$5 billion bonds, the company's biggest US dollar offering and the first time its issued debt since 2015, drawing comparisons to the debt of internet giant Alibaba Group Holding.

[HONG KONG] Tencent Holdings sold US$5 billion bonds, the company's biggest US dollar offering and the first time its issued debt since 2015, drawing comparisons to the debt of internet giant Alibaba Group Holding.

The five-, 10- and 20-year fixed-rate tranches priced at 65 basis points, 105 basis points, and 105 basis points respectively above US Treasuries, compared with the initial price guidance of around 95 basis points, 130 basis points and 135 basis points. The Chinese Internet company also sold five-year floating-rate notes at a 60.5 basis points over three-month Libor, according to data compiled by Bloomberg show.

Spreads on all four tranches narrowed by 1.5bp to 6bp on Friday morning, traders who were not authorized to speak publicly and asked not to be identified said.

Alibaba sold US$7 billion of debt in November, including a 10-year and a 20-year bond at 108 basis points and 118 points above Treasuries respectively. The Tencent bonds are rated A2 by Moody's Investors Service, one level below Alibaba's notes.

Compared with Alibaba, Tencent has a lower net cash position and slightly higher gross leverage, according to a research note from Nomura Holdings on Thursday.

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"We think Alibaba's aggressive acquisition appetite due to the new retail business strategy will narrow the difference on their credit metrics," the Nomura analysts wrote.

The Tencent deal received orders of more than US$41 billion across all tranches but skewed toward the 10-year portion, according to a person with knowledge of the transaction, who asked not to be identified as the details are private.

"Although Tencent and Alibaba operate in different areas, their bonds will likely trade close to each other as investors recognize and value the respective strength of each issuer amid China's shift to a technology-driven economy," Cary Yeung, Hong Kong-based head of greater China debt at Pictet Asset Management, said before the bonds priced.

Tencent, known for games and messaging service WeChat, last came to the dollar-bond market in 2015, when it sold a total of US$2.1 billion of bonds after pricing US$2.5 billion of notes in the previous year, according to data compiled by Bloomberg.

"We view Tencent as a strong credit which is reflected in both its rating and current spread levels," Alaa Bushehri, a portfolio manager for emerging-market debt at BNP Paribas Asset Management, said before the bond sale.

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