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Tencent Has Resorted to the Bond Market Again

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Apr. 5 2019, Published 7:48 a.m. ET

Tencent is raising $6 billion through debt

Chinese tech giant Tencent (TCEHY) announced on Thursday, April 4, that it will be raising $6 billion in debt. The gaming behemoth didn’t disclose exactly why the company is raising the funds.

Late last year, Tencent announced a major reorganization after its gaming business took a massive hit. Chinese authorities had frozen approvals for game licenses last year. That problem persists, as licenses are being approved for only some games currently.

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Tencent went through a major reorganization after its gaming business suffered

Tencent’s video game revenue fell 0.69% YoY during the last quarter of 2018 to 24.2 billion Chinese yuan (or $3.55 billion). The gaming share of Tencent’s total revenue shrank to 28.5% during that quarter from 36.7% in the corresponding quarter of 2017.

As the graph shows, Tencent’s gaming revenue growth was over 40% YoY not too far back before the drastic deceleration mainly due to the freezing of approvals. The reorganization last year suggests that Tencent no longer wants to be reliant on gaming but has shifted its focus to fast-growing pockets like cloud-computing and financial technology, which saw robust growth in the fourth quarter of 2018.

The money being raised could go towards further investments in such segments. Tencent, along with Alibaba (BABA), has taken a page out of SoftBank’s book and has been investing heavily in several startups across Asia with a tilt toward Indian tech companies.

This is the second time Tencent has raised funds from the debt market in as many years after the company raised $5 billion in debt in January last year.

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