Corporate bonds are popular, especially those sold by companies that have strong cash flows like Tencent and Saudi Aramco.
For investors, investments in those bonds are not as volatile as equities.
For corporates, there is no dilution in earnings and they could benefit from growth investments with low cost of capital.
Two recent examples (this week): Tencent and Saudi Aramco.
Tencent has been a very active investor in Chinese and global markets. It is one of the two modern “empires” rooted in China (the other being Alibaba). Some of its global investment include:
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- Dec 2017 – Tencent’s music unit (TME) swapped shares with Spotify, resulting in a 7.5% stake when Spotify IPO; Spotify owned 9% in TME in TME’s IPO (Tencent owned 58% of TME)
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- Nov 2017 – 12% stake in Snap
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- Mar 2017 – $1.8 billino for 5% stake in Tesla
Tencent just announced that it has raised $6 billion in a bond sale, including $2 billion in fixed and floating rate five-year notes, $500 million in seven-year notes, $3 billion in 10-year notes and $500 million in 30-year notes, carrying coupons of 3.280 percent, 3.575 percent, 3.975 percent and 4.525 percent on the fixed rate five-year notes, seven-year notes, 10-year notes and 30-year notes.
Tencent has now caught up with Alibaba, who sold $7 billion bond in November 2017. (2018 is a year of turmoil that no big bond sales are possible)
Saudi Aramco, the world’s biggest oil producer, was the world’s most profitable company in 2018 (almost three times as much as Apple).
And Aramco has planned bond sale would raise around $10+ billion and is meeting investors this week around the globe.
Aramco has a crucial role to play in Saudi Arabia’s diversification from oil production. And an important part of the strategy is to invest in technology and other high-growth sectors around the world through Saudi Arabia’s Public Investment Fund (PIF), a major backer ($45 billion over 5 years) of Softbank Vision Fund since 2016.
Essentially, Saudi (and PIF) and Tencent are getting low-cost capital from bond sales and invest in tech. And the risks for bond investors are low, given Aramco’s core assets/cash flows and Tencent’s ubiquitous presence in Chinese economy.
It’s gonna be a good time for startup companies that fit Tencent’s or Saudi’s appetite…