Hong Kong, April 02, 2019 -- Moody's Investors Service has assigned an A1 senior unsecured rating
to Tencent Holdings Limited's proposed medium-term notes
drawn under its USD20 billion global MTN program.
The rating outlook is stable.
The proceeds from the drawdown will be used for general corporate purposes.
RATINGS RATIONALE
"The proposed notes will further enhance Tencent's already
strong liquidity position, and enable it to sustain steady growth
in revenue and cash flow," says Lina Choi, a Moody's
Senior Vice President.
"Moreover, the company has maintained its prudent financial discipline
and maintain a solid credit profile while expanding its business profile.
The proposed drawdown will have a limited impact on its low leverage,
which is appropriate for its A1 ratings," adds Choi,
also the Lead Analyst for Tencent.
Tencent benefits from the increasing diversification of its revenue resources.
Specifically, the company demonstrates a strong ability to monetize
new products and services across a large and active customer base.
As of 31 December 2018, the company's monthly active user base for
Weixin and WeChat reached close to 1.1 billion in total,
up by 11% year-on-year.
In 2018, Tencent's advertising and other businesses —
including online payment and FinTech services, social and video
advertising, and cloud services — rose by 62% year-on-year
and contributed 44% of total revenue. This improvement helped
mitigate the slower growth in PC-based and smart phone games revenue.
Moody's expects that Tencent's EBITDA margin will dilute to
around 30%-35% from about 37% in 2018 and
40% in 2017, mainly because of the revenue shift in business
mix. The fast growth in its non-games businesses,
such as advertising and digital content, carry lower margins when
compared to the games business.
Given the persistently solid growth in Tencent's cash flow, Moody's
believes the benefits of revenue diversification outweigh margin declines.
Tencent maintained stable leverage, as measured by adjusted debt/EBITDA,
at 1.6x at the end of 2018, as strong EBITDA growth offset
the increase in debt.
Moody's expects only a limited impact from the notes issuance on
Tencent's low leverage, because the company's revenue
and cash flow generation will remain strong.
Moody's believes Tencent will continue to exercise prudence in its
financial management, and maintain its leverage at a level appropriate
for its A1 ratings, while pursuing business expansion.
Tencent's liquidity position is solid. As of 31 December 2018,
it held cash and cash equivalents of RMB166.9 billion, including
term deposits and treasury investments of RMB69.1 billion.
Tencent's liquid resources far exceeded its short-term debt of
RMB40.5 billion.
The stable ratings outlook reflects Tencent's consistently solid revenue
and EBITDA generation, and the company's proven ability to
maintain a strong credit profile, while expanding its businesses.
Moody's believes the company will continue to exercise discipline
in its financial management.
Upward ratings pressure will be limited in the near term, because
the company's ratings are already at the same level as the Chinese government's
sovereign rating. Tencent conducts most of its operations and activities
in China.
Downward ratings pressure could emerge if Tencent:
(1) Experiences a sustained erosion in its active user base, which
leads to lower cash flow and pushes its EBITDA margin below 35%
on a sustained basis;
(2) Engages in aggressive acquisitions that pressure its balance sheet
liquidity or raise its overall risk profile;
(3) Undertakes an aggressive dividend policy that weakens its balance-sheet
liquidity, or there is evidence of cash leakage to its parent or
related companies; or
(4) Demonstrates a weaker credit profile — with debt/EBITDA trending
toward 2x on a sustained basis, retained cash flow/debt falling
below 35% — and records a net debt position.
Furthermore, adverse developments in China's regulatory regime,
which could affect Tencent's operations or business model, would
be negative for the ratings.
The principal methodology used in this rating was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Tencent Holdings Limited is a leading provider of internet value added
services in China. It operates leading social network services,
online game platforms and digital content, including news,
video, music and literature. As of 31 December 2018,
it was 31.1%-owned by Naspers Limited (Baa3 stable).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Lina Choi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
