Baidu sees robust demand in $1 billion bond issue despite China regulatory concerns

A man takes pictures at the 2018 Baidu World conference and exhibit in Beijing
A man takes pictures at the 2018 Baidu World conference and exhibit in Beijing, China, November 1, 2018. REUTERS/Jason Lee

August 19, 2021

By Scott Murdoch

HONG KONG (Reuters) -Baidu Inc has raised $1 billion in a two-tranche U.S. dollar sustainability bond, negotiating better-than-expected terms amid strong demand and despite concerns about China’s regulatory clampdown on the tech sector.

It was the first major debt fundraising by a Chinese tech firm since the latest onslaught of regulatory actions that began in July, and its success should give other issuers confidence there is still significant global investor interest in Chinese deals, bankers said.

Its 5.5-year tranche bond raised $300 million and the 10-year tranche secured $700 million, a company statement said.

Baidu’s dominance of China’s search market underpinned demand and the final price was significantly cheaper than when first flagged to investors on Wednesday. Demand from investors reached more than $5 billion, according to two sources with direct knowledge of the matter.

“It has been a very noisy environment in the tech sector. But Baidu was able to overcome that and the volatility in the market has been more pronounced in equities than it has been in the credit market,” said one of the sources who declined to be identified discussing private information.

Baidu, which plans to use the proceeds to pay down debt and fund ESG-related projects, did not immediately respond to a request for comment.

The shorter dated bond was priced at U.S. Treasuries plus 83 basis points versus initial guidance of plus 115 basis points, while the longer dated issuance was priced at U.S. Treasuries plus 113 basis points versus initial guidance of plus 150 basis points.

In its prospectus for the deal, Baidu noted it was unclear whether new Chinese rules requiring companies that plan to list overseas undergo a review by the Cyberspace Administration of China had similar implications for companies already listed abroad that intend to conduct further equity or debt offerings.

“We cannot predict the impact of the draft measures,” it said.

Chinese companies have raised $121.2 billion in U.S. dollar debt funding so far in 2021, according to Dealogic data, slightly below the $126.6 billion raised during the same period last year.

Chinese authorities have upended their previously laissez-faire approach to the tech sector, launching a slew of antitrust probes, imposing fines and introducing new regulations. New rules https://www.reuters.com/business/media-telecom/china-issues-draft-rules-banning-unfair-competition-internet-sector-2021-08-17 were published this week aimed at tackling anti-competitive behaviour and companies’ handling of data.

(Reporting by Scott Murdoch in Hong Kong; Editing by Edwina Gibbs)