Ctrip Bonds: Outspending Private Rivals 携程债券：超出私募的竞争对手
As competition intensifies in nearly every major space on the Chinese Internet, companies are finding themselves increasingly in need of new money as their profits tumble and cash reserves dwindle. The options for new funding are particularly limited for younger private companies, whose main source of money is usually private equity and venture capital that is relatively limited. Older listed companies have more choices, since they can tap financial markets by issuing bonds or new shares to raise money. That distinction is seeing a small but growing number of older Chinese Internet firms raise money by issuing new debt to compete with their smaller but very aggressive rivals in the fight for market share. In the latest development on that front, leading online travel services provider Ctrip (Nasdaq: CTRP) has just announced plans to issue up to $140 million in convertible bonds . (company announcement)
The plan would see Ctrip managers purchase a big portion of those bonds, around $40 million worth, and new funds would be used for a number of purposes, including potential acquisitions. Initial reaction to the plan looks encouraging, with Ctrip shares rising nearly 3 percent in after hours trade after the plan was announced. Investors will no doubt be encouraged to see the company’s managers are taking steps not only to bolster Ctrip’s share price, but also to reinforce its cash reserves as the company fights a recent series of price wars with established rivals like eLong (Nasdaq: LONG), as well as start-up rivals like Qunar, which is backed by online search leader Baidu (Nasdaq: BIDU), and a new service recently launched by aggressive e-commerce giant Jingdong Mall.
As I indicated earlier, Ctrip has a distinct advantage over Qunar and the new Jingdong travel service since it can go to financial markets to raise new money with this kind of bond offering. By comparison, Qunar and Jingdong must both look for new private investors to get new funds, and I wouldn’t be surprised if Qunar is doing that now after probably burning through much of the $300 million it raised with a major new investment from Baidu last year. (previous post)
From a broader perspective, Ctrip’s offering will make it the third major Internet player to turn to such financing in the last few months. Electronics retailing giant and e-commerce aspirant Suning (Shenzhen: 002024) announced plans for its first-ever corporate bond issue worth 8 billion yuan last month (previous post), while Internet leader Tencent (HKEx: 700) weeks later completed a bond offer worth $600 million. (previous post)
Look for more of this kind of fund raising in the weeks and months ahead, especially in the e-commerce, travel and advertising-dependent sectors where competition has been especially brutal for much of this year. We could see new offerings coming before the end of the year from names like portals Sina (Nasdaq: SINA), Sohu (Nasdaq: SOHU) and the newly formed video sharing giant Youku Tudou (NYSE: YOKU), with such offerings probably in the $100-$300 million range.
Bottom line: Ctrip’s new bond offer is the latest in a string of new fund raising by listed Internet firms looking to bolster their cash positions amid stiff competition, with more similar plans likely to come.
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