36 krypton statistics found that about 20% of the 36 Chinese stocks with a market value of more than 10 billion US dollars (as of June 10, the same below) have completed bond issuance since the beginning of the year.Among them, TSMC has the highest frequency of debt issuance, and has issued bonds three times.Tencent Holdings set a record for the largest US dollar bond offering by Chinese companies so far this year.Xiaomi Group announced the first domestic and overseas bond issuance in April.
High market value and high visibility, these companies have one thing in common-not bad money.
“Not bad money” is reflected in two aspects: sufficient cash flow and low debt ratio.
Observing the asset-liability ratios of the three companies, as of December 31, 2019, the liabilities of TSMC and Xiaomi Group in total assets were lower than the industry average. Only Tencent Holdings’s index was higher than the industry average.All three companies’ cash flow from operating activities was better than the industry average.
Data source: Flush, company financial report; cartography: 36 krypton
In fact, large companies such as Apple and Amazon often issue bonds when cash flow is sufficient.Apple announced in early May that it planned to issue 4 batches of US$8.5 billion of 3–30 year bonds, which was the first time Apple issued bonds since September 2019.According to its quarterly report, Apple has a huge cash reserve of $190 billion.Earlier this month, Amazon announced that it planned to issue US$10 billion in corporate bonds, divided into 6 wholesale banks, with a debt repayment period of 3-40 years.
The economy is sluggish, and governments tend to lower central bank interest rates to stimulate the economy.Loose market liquidity means lower market interest rates, which gives companies the opportunity to raise debt at low cost and may become a driving force for large companies to issue bonds.According to statistics from financial data company Dealogic, global bond sales in Q1 in 2020 reached the highest record in the history of the period, an increase of 5% year-on-year to US$2.07 trillion.
Counting the companies that intend to issue bonds, since the beginning of the year, over 30% of the 36 Chinese stocks with a market value of more than US$10 billion have debt issuances and plans.
Statistics of 36 Chinese stocks with a market value of more than 10 billion US dollars
Data source: public information; cartography: 36 krypton
In addition, precautions for business development, improved financial flexibility, and optimized debt structure are also reasons for large companies to consider issuing bonds.
Judging from the company’s announcement and its recent actions, Tencent Holdings, TSMC, and Xiaomi Group have different funding purposes.Both TSMC and Tencent Holdings have business expansion plans.
At the end of April, TSMC announced that it had completed the issuance of over NT$14 billion in bonds.Among them, the 5-year corporate bond interest rate is 0.55%, the 7-year interest rate is 0.6%, and the 10-year interest rate is 0.64%. The three-year issuance amounts are NT$ 4.5, 7.5 and 2.4 billion respectively.The proceeds from this bond issue will be used to build and expand factories and increase pollution prevention equipment.
Then, on May 15, TSMC officially announced that it will build a fab in Arizona, USA, and said that it will invest a total of 12 billion US dollars from 2021 to 2029.
Tencent Holdings announced a few days before the announcement of the bond issuance, the company will invest 500 billion yuan in the next five years for the further layout of new infrastructure such as cloud computing, artificial intelligence, and blockchain.
It is worth noting that the bonds issued by Tencent Holdings are divided into four batches with a maximum term of 40 years.This is also the performance of Tencent Holdings in recent years to optimize the debt structure in terms of debt service.
Tencent Holdings has completed a total of 11 debt issuances since its listing, and the optional debt service maturity has continued to expand.When talking about the new round of bond issuance, CFO Luo Shuohan of Tencent Holdings stated: “We have a strong balance sheet, including ample liquid assets. The first successful issuance of 40-year notes further extended the credit curve and allowed us to extend our debt lifeThe combination is more balanced.”
Tencent Holdings’ bond issuance process
Source: Tencent Holdings Announcement; Drawing: 36 krypton
From the official introduction and the type of bond issuance, the purpose of the Xiaomi Group’s bond issuance is more inclined to borrow the new and the old, and explore multi-market financing channels through domestic and overseas two-way financing.
On April 2, Xiaomi Group issued domestic public bonds for the first time, with a maturity of one year, a value of 1 billion yuan, and a coupon rate of 2.78%.Xiaomi Group said that the raised funds will mainly be used to supplement working capital, repay domestic loans, and 20% of the proceeds will be used to actively support the fight against the epidemic.
On April 23, Xiaomi Group issued its first overseas public bond, a 10-year bond worth US$600 million, with a coupon rate of 3.375%. It will be used for general corporate purposes and to repay existing loans.
Xiaomi Group said that the bond issue reached 8.5 times oversubscription.Tencent Holdings has also received multiple oversubscriptions for the newly issued bonds.According to reports on Wall Street, informed sources revealed that investors are very enthusiastic about the subscription of Tencent bonds, with the subscription amount reaching 36 billion US dollars.
News of bond issuance may also stimulate the secondary market.Since the announcement of the bond issuance, the stock price of Xiaomi Group has risen by nearly 30%, while TSMC and Tencent Holdings have both increased by more than 7%.
When the epidemic hits the pause button for the real economy, big companies that are “not bad” have to think about the future.Under the background of the stock market downturn, the cost of bond financing is lower than the issuance of new shares, coupled with the favor of institutional investors, why not do it?