Tencent-Tesla Development

Recently, Tencent Holdings has acquired 8.17 shares from Tesla Company earning it the fifth largest shareholders of Tesla shares (NASDAQ:TSLA). Tencent spent approximately $1.8 billion shillings for the acquisition of the shares.

The companies with the highest amount of Tesla shares include; Elon Musk, Fidelity, T. Rowe Price and lastly Baille Gifford.

Tencent Holdings (OTCPK: TCEH, OTCPK: TCTZD) communicated that it believed in the importance of supporting entrepreneurs endowed with capital.  The Chinese powerhouse described the company Elon Musk as the quintessence of entrepreneurial expertise, combining mission and vision as well as execution.

In addition to that, Tencent is vastly viewed as the second largest internet corporation in Asia. The largest internet company being Alibaba. Tencent apparently has the rightful possession of the WeChat social network (889M MAUs). In the previous year, Tencent Holdings provided its support for the Chinese EV initiative for Future Mobility. Needless to say, shares of Tencent increased with a margin of 42% during the Hong Kong trading.

Tesla Holdings furthermore released its convertible bonds that are due in the year 2022. The bond will feature a 2.375% coupon.  From a closer perspective, 2.375% coupon for a period of five years seems relatively low scarcely higher than the returns of equivalent-maturity treasuries. Ultimately, it may appear that Tesla Holdings could have a credit quality that resembles that of the U.S Government.

Taking into account that part of the value of the bond has been caused by relatively large portion of the conversion factor.  Fortunately for investors with the aim of finding out the value of the security, Tesla Holdings detached itself from the dilution of the bonds which in turn ample information on the value to the conversion factor.

Therefore, with the help of this information, one can ultimately determine the returns expected by the investors through an elaborate clear DCF. From this, it can be observed that Tesla received net revenue of $710.3 million which is the figure derived after deducting an amount of $131.5 million from the figure of $850 million per value. However, it should be noted that  the actual figure of Tesla was higher than the ones stated putting into account that the bonds were issued at a price of 98.86 towards the underwriters.

In conclusion, Tesla Holdings will acquire interest costs higher than $20 million. This figure is gotten from the product of $850 and 0.02375. Also, the cost of the final maturity per value will be $850 million. The following is a representation of the cashflow in millions.

Bond Cash Flows

3/15/2017 9/15/2017 3/15/2018 9/15/2018 3/15/2019 9/15/2019 3/15/2020 9/15/2020 3/15/2021 9/15/2021 3/15/2022
-$718.50 $10.09 $10.09 $10.09 $10.09 $10.09 $10.09 $10.09 $10.09 $10.09 $860.09

 

The Internal Rate of Return (IRR) of the above cash flows is 6.09%. this is the exact figure another investor could earn when taking the exact the contrary side of buying bonds and selling dilution hedge as opposed to ending up with a fully hedged bond with none exposure towards Tesla’s stock price.