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Bonds

Tencent opens $4bn bond sale amid China debt market turmoil

Issue comes as internet platforms pressured over anti-competitive practices

Tencent Holdings and 33 other internet companies were told Tuesday to rectify their behavior in light of the $2.8 billion fine given to  Alibaba.   © Reuters

HONG KONG -- Tencent Holdings is seeking up to $4 billion from bond investors even as default worries centered on a Chinese state company have shaken Asia's credit markets.

Chinese technology conglomerate Tencent, known for its WeChat messaging platform and mobile games, has set price guidance for the bond offering and may finalize terms as early as Thursday, according to a deal term sheet seen by Nikkei Asia.

The debt sale comes even as concerns over the health of China Huarong Asset Management have sparked a sell-off of bonds issued by the nation's largest distressed debt manager and many other Asian companies.

The sale also comes amid a crackdown by Beijing on the country's leading online platforms. Last Saturday, Alibaba Group Holding was fined 18.2 billion yuan ($2.78 billion) for abuse of its dominant position in online retail. Tencent and 33 other companies were told Tuesday to also rectify their behavior, in light of the fine.

The State Administration for Market Regulation on Thursday published pledges from Tencent and others to abide by the law, compete fairly, and not restrict competition.

"While investors were concerned with the short-term impact from regulation and market volatility, they were still very interested in the bonds," said a person familiar with Tencent's sale. "Tencent is among the safest bets out there in Asia credit."

The company will use the funds raised for general corporate purposes, according to another person familiar with the deal.

S&P Global Ratings in a note this week said rising online adoption and spending should support growth across Tencent's businesses. "However, China's increased regulatory scrutiny on antitrust and fintech may weigh on Tencent's growth and profitability," it said. "Tencent's large financial headroom should provide enough buffer against more considerable regulatory actions, should they occur."

The company is offering 10-, 20-, 30- and 40-year bonds, according to its term sheet. It has guided a spread of 165 basis points for the 10-year tranche compared with U.S. Treasury bonds of that duration, 175 basis points for the 20-year tranche and 185 for the 30-year offering.

The guidance for the 10- and 20-year notes suggests the bonds could be sold at a lower premium to the U.S. rate benchmark than when Tencent last issued bonds in May 2020. But the longer-term bonds could come with a higher differential. Spreads often narrow during final pricing.

While the term sheet did not specify the exact size of the deal, one source said the National Development and Reform Commission had approved a sale of up to $4.15 billion. Chinese companies need to seek the body's approval before selling bonds.

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