Logo of Tencent Photo: VCG

Chinese technology giant Tencent Holdings has priced a bond offering worth nearly $5.7 billion, with relatively low-interest yuan-denominated notes accounting for about two thirds of the total, the company announced on Wednesday. 

The financing highlights the opportunities available to major Chinese technology companies to tap relatively low-cost yuan funding as global competition in artificial intelligence (AI) intensifies, a Chinese expert said.

According to Tencent's announcement, the company priced $1.8 billion in US dollar-denominated notes and 26 billion yuan ($3.89 billion) in yuan-denominated notes under its $30 billion global medium-term note program.

The yuan portion comprises 20 billion yuan in 10-year notes carrying an annual coupon of 2.4 percent and 6 billion yuan in 30-year notes with a coupon of 3 percent.

By comparison, the dollar portion includes $1.3 billion in 10-year notes with a coupon of 6.1 percent and $500 million in 20-year notes carrying a coupon of 6.75 percent.

The yuan notes represent the majority of the financing while carrying substantially lower coupon rates than their dollar counterparts.

The offering drew strong investor demand, with combined orders exceeding $23 billion, more than four times the final offering size, Reuters reported on Tuesday.

The strong investor demand for Tencent's bond offering reflects capital market confidence in the company's business fundamentals and AI development prospects, Liu Dingding, a veteran industry analyst, told the Global Times on Wednesday.

As global AI competition intensifies, access to affordable long-term financing is becoming increasingly important, said Liu, noting that Tencent's latest bond offering highlights the advantages of yuan financing, with yuan-denominated notes accounting for the majority of the issuance and carrying significantly lower coupon rates than their US dollar counterparts.

As global AI investment continues to expand, financing costs are becoming an increasingly important factor in competition among technology companies. With US dollar bond yields remaining elevated, Chinese technology firms can capitalize on the relatively lower cost of yuan financing to expand their AI-related investments, Singapore's Lianhe Zaobao reported.

"Such yuan financing options can help Chinese technology companies manage funding costs and sustain investment in AI innovation and commercialization," said Liu.

More broadly, continued support from the capital markets can accelerate technological progress and further strengthen the competitiveness of China's AI industry, the expert said.

Global Times