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Baidu raises US$1 billion from first green bonds as the Chinese tech giant works towards 2030 carbon neutral goal

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Baidu has raised US$1 billion from its first US dollar sustainable bonds, as the Chinese search engine and artificial intelligence giant tapped strong investor demand for green notes, taking it one step closer to achieving its goal of becoming carbon neutral by 2030.

The debt offering comprises a US$300 million tranche maturing in 2027, and a US$700 million tranche maturing in 2031. Both senior unsecured notes, rated "A3" by Moody's and "A" by Fitch, were priced at much tighter credit spreads than the initial price guidance given to investors on Tuesday, indicating strong demand.

The green bonds were oversubscribed five times, according to a person familiar with the transaction. This comes despite the heightened regulatory scrutiny of Chinese tech firms that has sent Baidu's Hong Kong-listed shares 30 per cent lower since July.

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"We are seeing a trend for many Chinese tech companies working to green up their operations," said the person. "From a demand perspective, over the past 12 months we are seeing the vast majority of fund managers offering portfolios dedicated to green projects."

Baidu CEO Robin Li (right) unveils a robocar prototype at the annual Baidu World conference on Wednesday. Photo: Handout

It was the Beijing-headquartered company's third US dollar bond offering in 19 months, after tapping the market in January and June last year to raise more than US$1.9 billion, data from Refinitiv shows.

The bond sale came a day after Baidu unveiled a "robocar" electric vehicle prototype on Wednesday, which chief executive Robin Li envisioned would replace cars clogging the roads today. Chinese companies like Baidu are taking advantage of the low-interest rate environment to tap funding to back their research and development of next-generation technologies that hold the promise of helping Beijing achieve peak emissions before 2030, and net zero emissions by 2060.

In June, Baidu announced that it would use advanced technology and innovative mechanisms to minimise its ecological footprint and achieve carbon neutrality in its operations by the end of the decade. With 2020 as the starting point, Baidu said that it was eyeing six different operational aspects to fulfil carbon neutral targets, including data centres, office buildings, carbon offsets, intelligent transport, AI cloud and supply chains.

The 10-year tranche was priced 113 basis points above US Treasuries, translating to a coupon of 2.375 per cent, according to a term sheet seen by the Post. It was tighter than the 150 basis points price guidance given to investors and cheaper than the 160 basis points spread that its previous 10-year bond was priced at in 2020. The 5.5-year tranche has a coupon of 1.625 per cent.

Goldman Sachs, Bank of America and JPMorgan were the joint bookrunners of the deal.

Baidu's latest prototype, which includes a second generation artificial intelligence chip, shows that its development in the area of AI is bearing fruit, said Sean Jutahkiti, a senior portfolio manager and head of Asia credit research at US fund manager Neuberger Berman.

"As a tech company, the addition of successful new products will improve the long-term competitiveness and its cash flow generation capability," Jutahkiti said, noting that Baidu's earlier investments in AI were a drag on its cash flow, but the company has since found a better balance between investment and monetisation.

Part of the eligible projects under Baidu's framework include self-built data centres whose power usage efficiency must comply with certain industry standards and R&D of electric vehicles and robo taxis. It will also enable Baidu to develop AI-powered health care products to improve health care services.

Globally, green and sustainability bond and loan issuances totalled US$809.5 billion in the first half, nearly tripling from the US$286.7 billion in the same period last year, according to Refinitiv. Bank of America forecasts that for the full year such issuances will total US$900 billion.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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