Tencent (700:HK) now owns 5% of Tesla (TSLA)

The Chinese internet conglomerate Tencent filed a 13G form with the SEC yesterday, fulfilling its legal requirement to declare 5% ownership of a publicly traded US firm–in this case, TSLA.

Filing a 13rather than the better-known 13D indicates Tencent intends to remain a passive investor rather than seeking a voice in TSLA operations.

According to the filing, Tencent acquired its 8.2 million shares (at a cost of $1.8 billion) both by participating in TSLA’s public offering on March 17th and through market purchases.  Tencent reached the 5% level on March 24th.

When I first heard of the stake, it struck me as peculiar that Tencent would make open market purchases, in which the money goes to third parties, rather than arranging for a private placement of stock from TSLA, in which case all the money would go to fund TSLA.  Looking at the 13G a little more closely, however, I realized that Tencent’s total cost implies an average acquisition price of $219 a share, meaning Tencent has been patiently accumulating shares at lower prices.  Now I’m thinking that Tencent took part in the recent offering to provide some financial support to TSLA–and then rounded its position up to 5% during the following few days in order to file a 13G that publicly declares its backing.

the TSLA offering

The TSLA offering raised about $1.3 billion, through an issue of $400 million in common stock plus $1 billion minus in 2.375% convertible five-year notes.  The conversion price is $327.50, a 25% premium to the stock price at the time of issue.

The notes are convertible, at the option of the holder, but, practically speaking, only if they are trading at a 30% premium to conversion value.  To my mind, though, they represent a much better deal than fixed income investors have gotten in prior TSLA offerings.  This seems to me to imply that these buyers see much greater credit risk with TSLA today than they have in prior years.

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