Qihoo Prices $900M Senior Notes to Strengthen Balance Sheet - Analyst Blog

Qihoo 360 (QIHU) recently announced the pricing of Senior Unsecured Notes aggregating $900 million. The Notes are being offered to qualified institutional buyers under private placement. These Notes have been issued in two tranches of same amounts but with varying interest rates and maturities. The offering is expected to close on Aug 6, 2014, subject to customary closing conditions.

The tranches of $450 million each, carrying an annual interest rate of 0.50% and 1.75%, are due to mature on Aug 15, 2020 and Aug 15, 2021, respectively. The new issuance will require the company to pay semi-annual interests in arrears on Feb 15 and Aug 15 of each year, beginning Feb 15, 2015.

The Notes due to mature in 2020 are convertible into Qihoo's American Depositary Shares (ADS), at an initial rate of 7.9789 ADS per US$1,000 principal amount of the Notes (equivalent to an initial conversion price of approximately US$125.33 per ADS). On the other hand, the Notes due to mature in 2021 can be converted at an initial rate of 8.2799 ADS per US$1,000 principal amount (equivalent to an initial conversion price of approximately US$120.77 per ADS).

In order to manage over allotment, the joint book-running managers for the offering have been granted a 30-day option to purchase up to an additional US$67.5 principal amount of both the Notes. Qihoo expects to use the net proceeds from the offerings primarily for general corporate purposes.

Qihoo continues to solidify its position as the undisputed leader in the Chinese Internet market with its PC security products covering nearly 95% of Chinese PC Internet users and the mobile security solutions covering approximately 70% of Chinese smartphone users.

At quarter-end, Qihoo had cash and cash equivalents of $901.6 million versus $1,013.5 million in the prior quarter. The company had $6.0 billion in total debt (long-term plus short-term). The offering of the Senior Notes will lower its cost of capital, thereby strengthening the company's balance sheet and supporting growth.

Qihoo expects to invest in product development and technology innovation as well as in expanding its coverage of PC and mobile Internet, going forward. Its consistent focus on Internet and product innovation has been the cornerstone of its success.

We believe a strong balance sheet will help Qihoo capitalize on investment opportunities and make strategic acquisitions, further improving its growth prospects.

Currently, Qihoo has a Zacks Rank #3 (Hold). Other stocks that are performing well currently are NetEase, Inc. (NTES), RingCentral, Inc. (RNG) and VeriSign, Inc. (VRSN). All these stocks carry a Zacks Rank #2 (Buy).