Tencent Music prices $1 billion notes to fund buybacks, refinancing

Tencent Music Entertainment Group priced $1 billion of senior notes Wednesday, netting about $991.9 million to refinance offshore debt and repurchase shares.

The proceeds are earmarked for general corporate purposes, including refinancing offshore indebtedness and repurchasing shares, Tencent Music said in a statement.

The offering splits into $500 million of 5.050 percent notes due 2031 and $500 million of 5.650 percent notes due 2036, registered under the U.S. Securities Act of 1933 and expected to list on the Hong Kong Stock Exchange. J.P. Morgan Securities, Goldman Sachs (Asia) and HSBC act as joint bookrunners, with UBS, Bank of China and MUFG as joint lead managers. Tencent Music has an automatic shelf registration on Form F-3 with the U.S. Securities and Exchange Commission.

The buyback allocation points to management's view that the shares are undervalued after a roughly 53 percent decline this year, while the refinancing extends the maturity of offshore debt. Tencent Music's prior notes-offering announcement on Sept. 1 was followed by a 1.21 percent gain the next session, though the stock closed down 2.26 percent at $8.20 on Wednesday.

The dual-listed operator of QQ Music, Kugou Music and Kuwo Music has leaned on shareholder returns as growth cools, with profit falling in the first half and second-quarter revenue growth decelerating. The $1 billion raise adds fixed coupons of 5.050 percent and 5.650 percent through 2031 and 2036, lifting interest expense even as buybacks shrink the share count. Nomura cut Tencent Music to neutral from buy on Aug. 14, trimming its price target to $10 from $12.50, after China Renaissance and China Merchants both downgraded the stock to hold earlier that week.

The notes offering lets the Shenzhen-based company, backed by parent Tencent Holdings, retire offshore debt and return cash to holders without issuing new equity. Investors will watch the final prospectus supplement and the pace of repurchases for how quickly the capital is deployed, with the buyback expected to cushion the stock against further downside as the music-streaming operator competes with NetEase Cloud Music for users in China.

This article is for informational purposes only and does not constitute investment advice.