China's dot-com darlings tap cheap global credit

Sun Dec 2, 2012 4:06pm EST
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By Umesh Desai and Pete Sweeney

HONG KONG/SHANGHAI (Reuters) - Chinese search engine company Baidu Inc paid a lower interest rate than Google Inc when it sold $750 million in 10-year bonds last month.

China's three dominant dot-com names - Baidu, Alibaba and Tencent Holdings Ltd - have successfully tapped global funding this year, stockpiling a combined $6 billion in debt despite investor skepticism about opaque Chinese companies.

The big three plan to use the money to pad their industry advantage at home, to compete better abroad, and perhaps to buy cash-starved rivals.

Ultra-low interest rates on U.S. government bonds, the benchmark against which most debt is measured, have driven down borrowing costs around the world. That has been a boon to corporate borrowers who are finding plenty of yield-hungry investors willing to extend long-term credit.

"The mature guys, Alibaba, Tencent, Baidu, these guys need to fund new growth. They are incredibly dominant in China, so they need to expand into international markets and create new products," said Sean O'Rourke, an analyst at Shanghai-based Redtech Advisors.

O'Rourke said the money that Baidu raised in November - a total of $1.5 billion in 5- and 10-year bonds - would be more than enough to buy some of its smaller rivals, and said there were "dozens" of potential takeover targets.

While Baidu said it intends to use this tranche of funds for cross-border acquisitions, it could potentially spend it on buying domestic competitors that have listed abroad.

Baidu's bond sale was notable both for its size and its reception in the market, which has been skeptical of U.S.-listed Chinese companies after a rash of accounting scandals. The hurdle was especially high for Baidu because it lacks the physical assets bond investors prefer, and it was seeking a 10-year term, which is a lifetime for a technology firm.   Continued...

Employees walk past the logo of Baidu outside its headquarters in Beijing, December 15, 2010. REUTERS/Soo Hoo Zheyang