Internet company Baidu has mandated Goldman Sachs (Asia), HSBC and JP Morgan as joint bookrunners. They will lead fixed income investor calls for the proposed senior notes on Tuesday.
The SEC-registered deal is expected to hold an A3/—/A rating, in line with the issuer. Baidu is listed on the Nasdaq and is under review for downgrade by both Moody’s and Fitch. S&P does not rate the issuer.
Moody’s put Baidu under review for downgrade in mid-May when the company announced plans for growth through wholly-owned Financial Services Group. The ratings agency voiced concerns that the venture could distract from Baidu’s central business, creating higher levels of risk and debt leverage.
Its new bonds will improve its debt maturity profile, but will have little impact on the leverage as the funds are expected to be used for refinancing, wrote Moody’s on Tuesday. Baidu has indicated that it plans to reduce its leverage in the next 12 to 18 months.
The company has $750m of bonds coming up for maturity in November, issued in 2012. More recently, the company sold a $750m 3% 2020 and $500m 4.125% 2025 in June 2015. The 2025s were trading around 130bp over US Treasuries, MUFG analysts wrote in a note on Tuesday morning Hong Kong time.
CreditSights analysts said that the 2025s trade wider than peers, including Tencent and Alibaba Group Holdings. Baidu has a higher leverage, lower credit rating, smaller scale and market cap, and lower margins than Tencent and Alibaba, wrote CreditSights.
Baidu’s revenue was up 7% year-on-year in the first quarter of 2017. CreditSights expects the company’s growth rate to improve this year, but says margins may stay below historical levels.
Melco opens tap
The casino operator sold a tightly priced $650m 4.875% 2025 in May, on the back of a $1.35bn order book. The eight year non call three was issued to refinance the company’s outstanding $1bn 5% 2021s, issued in 2013.
Joint global co-ordinators ANZ and Deutsche Bank, along with joint bookrunners BOC International, ICBC (Asia) and ICBC Macau, opened books for the tap in the 100.25 area. The senior notes will otherwise carry the same terms as the original 144A/Reg S deal.
Deutsche was not on the original deal, but Bank of America Merrill Lynch was a joint global co-ordinator.
The borrower is looking for up to $350m from the tap, taking it to its initial goal of $1bn. The additional notes will extend more of the company’s debt maturity beyond the five year window, wrote analysts at Lucror Analytics on Tuesday.
Melco’s Ba3/BB- rated notes are listed in Singapore.
The issuer is a wholly-owned subsidiary of Melco Resorts & Entertainment, a US-listed casino and resort developer. In early May, the parent repurchased Crown Asia Investment’s remaining 11.2% shareholding in Melco Crown Entertainment, a Macau joint venture between Hong Kong’s Lawrence Ho and Australian billionaire James Packer.