TheChek News Flow

HONG KONG/NEW YORK (Reuters) - Tencent Music Entertainment launched its hotly-anticipated U.S. initial public offering (IPO) of up to $1.2 billion on Monday after global stock markets were boosted by a truce brokered by U.S. and Chinese leaders in their trade conflict.

The music arm of tech giant Tencent Holdings is looking to raise between $1.07 billion and $1.23 billion in a New York Stock Exchange IPO, according to a filing with the U.S. Securities and Exchange Commission.

The company originally planned to launch its offering in mid-October, Reuters previously reported.

But it then decided to delay the IPO over worries the steep global stock market sell-off in the past few months would affect the pricing.

The decision by China and the United States to call a 90-day hiatus on their trade war over the weekend sent Asian shares soaring on Monday as markets breathed a sign of relief that tensions would ease, at least temporarily.

The music streaming giant is selling 82 million American Depositary Receipts (ADRs) in a range of between $13 and $15 each, according to the filing.

Tencent Music could sell an additional 12.3 million shares if an over-allotment option is exercised.

The $1.23 billion figure is smaller than the $2 billion that was earlier mooted as a fundraising target, though the company never confirmed such a number.

A source close to the deal said Tencent Music was keen to get itself listed this year because it was worried U.S.-China trade tensions would worsen, not because it desperately needed fresh money.

“It’s not worth waiting any longer for a potentially higher valuation if they have to deal with so many uncertainties,” said the source.

At $1.23 billion, the IPO would still be one of the largest by a Chinese company in the United States this year, behind the $2.4 billion raised by video streaming company iQiyi in March and the $1.6 billion garnered by online group discounter Pinduoduo in July.

In total, Chinese companies have raised $7.8 billion from U.S. IPOs so far this year - the biggest amount since 2014 - according to Refinitiv data.

Tencent Music owns streaming apps QQ Music, Kugou and Kuwo as well as karaoke app WeSing, and claims more than 800 million monthly active users.

The company is targeting a valuation of up to $25 billion, according to a source close to the deal, roughly on par with that of its Swedish music streaming counterpart Spotify Technology, which went public in New York in April and has a market value of $24.3 billion.

Tencent Music, which has a cross shareholding deal with Spotify, offers more in the way of socially interactive services that makes it profitable.

It reported a 244 percent jump in profit in the first nine months of this year to $394 million from $114 million in the same period in 2017. By comparison, its Swedish peer posted a net loss of $520 million over the first nine months of the year.

The company will price its IPO on Dec. 4 and shares will begin trading on Dec. 12.

Bank of America, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley are the lead sponsors of the deal.

03 DEC 2018

De Cecco, the privately-held Italian pasta manufacturer, has issued two minbonds totalling EUR 25m, Italian language daily Il Sole 24 Ore reported. The report cited a statement noting that the proceeds of the minibonds will be used for R&D, product innovation and energy saving and environmental projects.

Banca Popolare di Bari acted as advisor, arranger and sole bookrunner.

The report noted that the first minibond totalling EUR 21m is quoted on the ExtraMot Pro market while the EUR 4m minibond has not been listed and was underwritten by a single professional investor.

The item cited chairman Filippo Antonio di Cecco as noting that the successful issues showed strong interest on the part of institutional investors in the company, particularly its internationalisation strategy.

The report added that De Cecco has turnover of EUR 450m and a net profit of EUR 13m.

In March this news service reported that De Cecco, had mandated Rothschild as a financial advisor ahead of a potential IPO. The listing was expected to take place by the end of this year, according to another report by this news service in June. However, the float faced a possible delay to January 2019 in case of acute political instability, the report noted.

There may be better opportunities to buy investment-grade debt next year

Should investors buy corporate bonds for Christmas? The contrarian case in favor is getting stronger, but it is still wise to wait for New Year sales.

It’s been a really bad year for U.S. investment-grade debt, and most professional money managers think the rout will continue, according to a Bank of America Merrill Lynch poll in early November.

But some plucky investors are now getting interested again. The main temptation is sheer value: Investment-grade bonds now yield 4.4%, the highest since mid-2010. In a world where a lot of bonds still offer negative yields, that’s hard to turn down.

An added attraction is last week’s hint by Federal Reserve Chairman Jerome Powell that interest-rate rises could soon end, which pushed down government-bond yields. Despite worries about global growth and high stock-market valuations, there’s little to suggest that the U.S. economy is about to fall into a recession or that inflation is about to surge.

Yet caution may be in order, at least for a little while.

One of the main reasons why investment-grade debt has done badly over the past year is that it had done amazingly well in previous years. Unlike stocks, corporate bonds can’t go up forever. Eventually, their yields get so close to those of risk-free government paper that it makes no sense to buy them anymore.

This spread versus risk-free assets was simply bound to widen from record lows as interest rates rose. And it remains at very low levels historically. A Bank of America index of spreads stands at 1.3 percentage point, compared with the 1.7 percentage-point average of the past decade.

Furthermore, the apparent value on offer isn’t as clear-cut for overseas investors. Higher short-term rates in the U.S. have massively increased hedging costs for those who want to buy U.S. bonds without betting on the dollar—which is often done by rolling short-term currency hedges. This has prompted European and Japanese investors to sell a lot of U.S. bonds, official data suggest. They actually lose money, net of hedges, by buying Treasurys instead of German or Japanese government debt.

Hedging costs are rising even further as 2018 draws to a close because of a technical quirk of the financial system. Global banks typically elude regulators by shrinking their balance sheets at year-end, making dollars scarcer. One side effect is to reduce the collateral required for dollar currency hedges. This problem should ease a bit in January, but hedging costs will remain high given the big gap between central-bank policy in the U.S. and elsewhere.

Investors should reassess whether there are bargains after the holiday season.