Baidu Announces Notes Offering Worth $1.5 Billion

Baidu, Inc. BIDU recently announced a public offering of notes aggregating $1.5 billion. These notes have been issued in two tranches of different amounts, with varying coupon rates and maturities.

The first tranche of $1 billion carries an interest rate of 3.875% and is due in 2023 while the second tranche of $500 million, which has an interest rate of 4.375%, is due in 2028.

The company stated that the transaction proceeds will be used to repay existing debt and for general corporate purposes.

Baidu's Cash Position

At the end of fourth-quarter 2017, cash, cash equivalents and short-term investments were RMB100.5 billion ($15.44 billion). Net operating cash inflow was RMB 10.0 billion ($1.53 billion) and capital expenditures were RMB 1.2 billion ($183 million).

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities, further improving its growth prospects. The senior notes' offering will bring down the company's cost of capital, in our view, thus strengthening its balance sheet and supporting growth.

Bottom Line

Baidu provides Internet search services in China. It also offers a Chinese language search platform for businesses to reach their customers.

Baidu's increasing presence in the autonomous driving space is helping inimprovingits competitive position. Just recently, the company got the long-awaited go-ahead to conduct open-road tests for its autonomous driving vehicles in designated areas in Beijing. This makes Baidu the first company to receive licenses for conducting road tests in Beijing, which is a big positive.

Some of the current buoyancy surrounding the shares is related to the company's dominance in the mobile search market andonline video as well asits consistent product development efforts. We believe that it has significant growth potential in the mobile market over the long term.

However, higher promotional expenses, heavy spending on new growth areas and increasing competition in its own search platform poseas concerns.

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