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Baidu Says $1.5 Billion Bond Issue Will Be ‘War Chest’

Nov. 21 (Bloomberg) -- Baidu Inc., owner of China’s most-popular search engine, said the $1.5 billion raised in its debut bond issue will serve as a “war chest” for strategic uses including possible acquisitions.

Raising U.S. dollars inexpensively will allow the company to retire some existing debt and also provides flexibility to look at ways of expanding the business, Kaiser Kuo, a spokesman for Beijing-based Baidu, said in an e-mailed response to questions today. “Our operations outside of China, though very modest at present, are growing,” he said.

Baidu, which accounts for more than three-quarters of China’s search-engine market by sales, is expanding in mobile as users migrate from personal computers to portable devices such as smartphones. Chief Executive Officer Robin Li needs to find new revenue sources as slowing economic growth in China damps demand for advertising, leading the company to project fourth-quarter sales growth will be the slowest in three years.

“Our bond offer is really about having a ready war chest that gives us flexibility for a range of future strategic uses,” Kuo said in the e-mail. “While we have no specific M&A deals pending currently, we will as always be attuned to opportunities and will make prudent acquisitions.”

Purchases of some Chinese companies may also require U.S. dollars, so it can’t be assumed that proceeds will only be used for cross-border transactions, he said.

Two-Part Sale

Baidu sold $750 million each of 2.25 percent, five-year debentures to yield 160 basis points more than similar-maturity Treasuries, and 3.5 percent, 10-year securities at a relative yield of 185 basis points, according to data compiled by Bloomberg.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. managed the transaction, Bloomberg data show.

Moody’s Investors Service assigned a first-time grade of A3 to Baidu, the ratings company said Nov. 5.

Baidu had total liabilities, including long-term loans, of 8.5 billion yuan ($1.4 billion) as of Sept. 30, according to its third-quarter financial statement. Third-quarter net income climbed 60 percent from a year earlier to 3.01 billion yuan, or 8.59 yuan an American depositary receipt, the company said.

Baidu accounted for 78.6 percent of China’s search-engine market by revenue in the third quarter, according to Analysys International, a researcher focused on the Chinese Internet market.

The company’s “leading position is supported by its well-established brand, continuous improvement of information search algorithms, growing user base, and continuous launches of new services and products,” Alan Gao, a Moody’s analyst, wrote in the report.

To contact Bloomberg News staff for this story: Sarika Gangar in New York at sgangar@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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