Chinese Tech Giants Issue Bonds for AI Investment

Recently, Chinese big tech companies such as Tencent (腾讯), Baidu (百度), and Alibaba (阿里巴巴) have accelerated efforts to secure funding for art...

Recently, Chinese big tech companies such as Tencent (腾讯), Baidu (百度), and Alibaba (阿里巴巴) have accelerated efforts to secure funding for artificial intelligence (AI) investments by expanding bond issuances. Despite having sufficient liquid assets, these companies are issuing bonds consecutively to optimize their funding structure by leveraging low interest rates and secure funds for AI infrastructure investment, as their AI businesses have begun generating substantial revenue.

According to a report by the Chinese Securities Times on the 22nd, Tencent announced on the 17th that it would issue bonds worth a total of 9 billion yuan (approximately 1.7614 trillion Korean won). Tencent operates the largest messaging and payment platform in China, 'WeChat (微信),' and the world’s largest game publishers, including 'Timi Studio,' 'Riot Games,' and 'Supercell.' It is also engaged in cloud services and digital content businesses.

This bond issuance, the first in over four years since April 2021, consists of 2 billion yuan (approximately 391.4 billion Korean won, 2.10% annual interest) in five-year bonds, 6 billion yuan (approximately 1.1743 trillion Korean won, 2.50% annual interest) in ten-year bonds, and 1 billion yuan (approximately 587.1 billion Korean won, 3.10% annual interest) in 30-year bonds. With this bond issuance, Tencent’s outstanding bond balance will exceed 19 billion dollars (approximately 26.4556 trillion Korean won).

Baidu, often referred to as 'China’s Google,' also issued 4.4 billion yuan (approximately 6.1266 trillion Korean won) worth of 'dim sum bonds' (offshore bonds denominated in yuan) in the Hong Kong market on the 8th of this month. This follows additional fundraising after issuing bonds worth 10 billion yuan (approximately 1.9571 trillion Korean won) and exchangeable bonds worth 2 billion dollars (approximately 2.7848 trillion Korean won) in March of this year.

Alibaba, a leading Chinese internet company engaged in e-commerce, logistics, fintech, and digital content businesses, issued zero-interest convertible bonds worth 3.2 billion dollars (approximately 4.4557 trillion Korean won) on the 10th. It followed this with the issuance of zero-interest exchangeable bonds worth 12.023 billion Hong Kong dollars (approximately 2.1553 trillion Korean won) in July.

Notably, these companies are issuing corporate bonds one after another despite having stable cash liquidity. According to Chinese market research firm Wind, Tencent, in particular, has bonds worth 1.5 billion dollars (approximately 2.0876 trillion Korean won) set to mature in 2026, but it is in a position to repay them sufficiently with cash.

Industry insiders interpreted the successive bond issuances as a long-term funding strategy leveraging low interest rates. In particular, the dim sum bond market in Hong Kong is evaluated as allowing companies to raise funds relatively cheaply due to its abundant liquidity and low issuance costs. A market insider told Chaejing, 'Since the liquidity in Hong Kong’s financial market is favorable, dim sum bonds have a high success rate of issuance, low barriers to entry, and are cheaper compared to stock issuance, leading to significant effects in optimizing capital structure and reducing financial costs.'

The purpose of Chinese big tech companies’ capital raising is to expand AI investments. According to a Chaejing report, as the AI businesses of major big tech companies have entered a phase of generating substantial revenue, funds are expected to be concentrated on expanding AI infrastructure. In fact, Alibaba announced that it plans to use approximately 80% of the 3.2 billion dollar convertible bonds recently issued to strengthen cloud infrastructure, such as expanding data centers and improving technology, and the remaining 20% for expanding overseas business and improving operational efficiency.

According to Bloomberg Research, the capital expenditure of major Chinese big tech companies, including Alibaba, Tencent, Baidu, and JD.com, is expected to more than double from 13 billion dollars (approximately 18 trillion Korean won) in 2023 to 32 billion dollars (approximately 44.5344 trillion Korean won) in 2025. Chaejing stated, 'As companies expand investments in AI and other areas, the demand for funds is increasing, and bond issuance is an important channel for raising capital,' adding, 'Low-cost funding serves as the ammunition for companies to plan and execute long-term strategies, solidifying their competitiveness.'