Recently, China's big tech firms such as Tencent (腾讯), Baidu (百度), and Alibaba (阿里巴巴) have been ramping up bond issuance to speed up securing funds for artificial intelligence (AI) investment. Even though they have ample cash-like assets, their successive bond sales are seen as moves to optimize funding structures by leveraging low interest rates and to secure capital for AI infrastructure investment, as their AI businesses have begun to generate meaningful revenue.
According to China Securities Journal on the 22nd, Tencent disclosed on the 17th that it would issue bonds totaling 9 billion yuan (about 1.7614 trillion won). Tencent operates China's largest messenger and payment platform WeChat (微信) and the world's largest game publishers TiMi Studio, Riot Games, and Supercell. It also runs cloud and digital content businesses.
This bond sale is the first in about four years since Apr. 2021 and consists of a 5-year tranche of 2 billion yuan (about 391.4 billion won; annual 2.10%), a 10-year tranche of 6 billion yuan (about 1.1743 trillion won; annual 2.50%), and a 30-year tranche of 1 billion yuan (about 195.9 billion won; annual 3.10%). With this issuance, Tencent's outstanding bond balance will exceed $19 billion (about 26.4556 trillion won).
Baidu, dubbed "China's Google," also issued 4.4 billion yuan (about 861.1 billion won) of dim sum bonds (offshore yuan-denominated bonds) in the Hong Kong market on the 8th of this month. This follows additional funding after the issuance of 10 billion yuan (about 1.9571 trillion won) in bonds in Mar. this year and $2 billion (about 2.7840 trillion won) in exchangeable bonds.
Alibaba, China's leading internet company engaged in e-commerce, logistics, fintech, and digital content businesses, issued $3.2 billion (about 4.4557 trillion won) in zero-coupon convertible bonds on the 10th. Earlier in Jul., it also issued HK$12.023 billion (about 2.1553 trillion won) in zero-coupon exchangeable bonds.
What stands out is that these corporations are issuing corporate bonds one after another despite stable cash liquidity. According to Wind, a Chinese market research firm, Tencent in particular has $1.5 billion (about 2.0876 trillion won) of bonds maturing in 2026, which it is fully capable of repaying with cash.
Industry officials interpreted the successive bond issuances as a strategy to secure long-term funds by taking advantage of low interest rates. In particular, Hong Kong's dim sum bond market is considered to have ample liquidity and low issuance expense, allowing corporations to raise funds relatively cheaply. A market official told Caijing, "Because liquidity in Hong Kong's financial market is favorable, dim sum bonds have a high success rate of issuance and low entry barriers, and their costs are lower than stock issuance, so they significantly help optimize capital structures and reduce financing expenses."
The purpose of capital raising by China's big tech is to expand AI investment. According to Caijing, major big tech firms' AI businesses are entering a full-fledged revenue generation phase, and funds are expected to be concentrated in expanding AI infrastructure. In fact, Alibaba said that it plans to use about 80% of the recently issued $3.2 billion convertible bonds to strengthen cloud infrastructure, including expanding data centers and improving technology, and the remaining 20% to expand overseas operations and improve operational efficiency.
Bloomberg Research projects that capital expenditure by major Chinese big tech firms such as Alibaba, Tencent, Baidu, and JD.com will more than double from $13 billion (about 18 trillion won) in 2023 to $32 billion (about 44.5344 trillion won) in 2025. Caijing noted, "As corporations ramp up investment in AI and other areas, funding needs are increasing, and bond issuance is an important channel for raising capital," adding, "Low-cost financing provides the ammunition for corporations to plan and execute long-term strategies, bolstering the companies' competitiveness."