❯ Tencent plans a bond sale of about $5 billion, reportedly to fund AI capital spending and chip purchases

A filing and an investor callTencent announced on October 12 that it proposes to issue notes to professional investors under its Global Medium Term Note Programme, subject to market conditions, the company’s needs and investor interest. According to HK01, citing Bloomberg, Tencent told fixed-income investors the same day that it plans to sell about $5 billion of bonds.

Part in dollars, part in yuanThe report, citing people familiar with the matter, says the sale includes $1.5 billion to $2 billion of dollar bonds and RMB 20 billion to RMB 25 billion of offshore yuan bonds, and could price as early as October 13. Proceeds are for general corporate purposes, mainly AI-related capital spending, most of which is expected to go to chips. Tencent also told investors on the call that it has no plans to issue shares or convertible bonds.

Second large bond sale in half a yearAccording to 21jingji.com’s October 8 account of a Bloomberg report, Tencent raised nearly $4.7 billion in June from long-dated dollar and yuan bonds, its largest bond sale since 2020. In the quarter ended June, its capital spending on AI projects and computing power rose 176% from a year earlier to RMB 52.8 billion.

Debt, not equityOn the call Tencent ruled out shares and convertibles and chose straight debt. Bonds do not dilute shareholders, and the interest cost is set in advance, which suits assets like chips that are bought once and used for years. Bond investors have to judge whether the revenue those chips bring in will cover interest and depreciation.

▮ SIGNALMore of the money for AI spending now comes from the bond market, and big companies’ balance sheets are becoming part of the compute race.