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(Hosting-NewsWire.com, December 16, 2012 ) San Francisco, CA -- The big three Chinese dot-coms: Tencent Holdings Ltd, Alibaba, and Baidu, recently accessed international funding, giving them a total of $6 billion in loans.
The companies intend to leverage the money to further their competitive edges in China, possibly by purchasing Chinese rivals, as well as to compete more successfully globally. Thanks to incredibly low interest rates on US government bonds, borrowing costs have plummeted throughout the world.
“The mature guys, Alibaba, Tencent, Baidu, these guys need to fund new growth,” said Sean O’Rourke, analyst with Shanghai’s Redtech Advisors. “They are incredibly dominant in China, so they need to expand into international markets and create new products.” According to O’Rourke, the $1.5 million Baidu recently raised is plenty to help it purchase several of its smaller competitors.
Although Baidu has indicated it would use the funds to purchase foreign rivals, it could buy out domestic competitors who have registered abroad.
Two Chinese technology companies managed to launch US initial public offerings in 2012. That is down from 15 last year, and significantly fewer than the 41 in 2010.
According to Thomson Reuters data, Chinese technology IPOs have raised just $153 million this year, compared to $2.17 billion in 2011 and $4 billion the prior year.
In contrast, Baidu and Tencent raised $2.1 billion through bond issues this year, while Alibaba has raised $4 billion in loans.
“It’s a lot faster and simpler to raise bonds – raising equity would result in share dilution and takes a longer time,” said Thomas Chong, Internet analyst with BOCI Research in Hong Kong. Chong said that despite having balance sheets brimming with cash, the companies were eager to borrow to add US dollars to their revenue streams.
China’s tax laws nudge many companies to borrow in international credit markets by requiring Chinese companies using domestic cash to repay foreign borrowing to pay a remittance tax as high as 10%, said Catharine Chan, Tencent head of investor relations.
“Raising offshore capital to repay offshore loans through bonds issues will help optimize our tax obligation while allowing us to take advantage of the higher deposit rates in China by parking cash generated from our operations onshore,” she said.
Chinese internet companies, which remain relatively unknown worldwide, continue to seek solid assets and steady cash flows, said Chan. “It will take some time to educate the bond market about Internet companies, given we are usually asset-light and have a shorter track record than traditional brick-and-mortar industries.”
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