12 ms·

ByteDance in talks with banks to borrow over $3B

72 points by spyke112 5y ago

dotcoma 5y ago
$3B, or $4B, or perhaps $5B, they are not sure.
- ta988 5y ago
  That's what they want based on some artificially made numbers saying "hey look our growth is exponential it will never stop come play with us". Now the banks will have to decide if they are at risk of being the ones with the bullet in the chamber of this russian roulette debt game.
oenetan 5y ago
http://web.archive.org/web/20210908121925/https://www.reuters.com/technology/bytedance-talks-borrow-up-5-bln-information-2021-09-08/ http://web.archive.org/web/20210908121925/https://www.reuter... https://ghostarchive.org/archive/Eo0an https://ghostarchive.org/archive/Eo0an
benjaminwootton 5y ago
Why don’t we see more large debt rounds, considering interest rates are so low? Are they just not publicised as much as equity, or could even the largest unprofitable unicorn not raise and service a $5 billion debt?
- rchaud 5y ago
  Unicorns have something better than a bank loan; interest-free VC money that costs nothing but equity, which itself is effectively worth $0 otherwise.
  - throwthere 5y ago
    That equity ends up being really expensive when unicorns ipo. Unicorns generally don’t raise non-convertible-debt because they simply can’t find lenders willing to take single digit interest rates coupled with even a small chance of failure.
    - rchaud 5y ago
      Isn't the expensive-ness an opportunity cost than a real cost? If I sell a 10% stake for $100m, my company is valued at $1bn. If I use that $100m towards growing the business, then both the 10% stake, and the remaining 90% grow in value. If a new investor wants a 10% stake, it's going to cost more than $100m. This is a very oversimplified example, so there are probably parts of the process where financial cost is incurred by the company. But I'm not sure where that happens.
      - umeshunni 5y ago
        Yes, but what if you could borrow $100M at 3% interest collateralized by $200M worth of your equity. Then, when you IPO, you just pay back the $100M * 1.03^t.
  - Grustaf 5y ago
    Equity is orders of magnitude more expensive than debt.
- ttul 5y ago
  Many big financing rounds include debt. When you see that someone raised $500M, perhaps $100M is debt. It levers the equity investment providing an enhanced return, while reducing dilution for existing shareholders.
- jollybean 5y ago
  There are large debt rounds in businesses that have cash flow, assets and huge operating budgets. The nature of VC/early-stage is such that it doesn't fit the risk profile for debt. Companies have no assets to back the debt with, often no consistent revenue etc.. With the insane valuations that companies are getting these days it seems to me that debt would even be more afraid. Like Clubhouse: 15M users, no revenue, flakey product, no obvious kind of revenue model, $1B valuation. Are you going to loan them $50M at 5% interest? Consider the risk on that. So if your startup sells some funky kind of new wind turbine, and you do the deployments yourself, you might be able to raise debt to pay for the the installs themselves, because you can do the math on that out for a few years. So you could raise debt to finance your sales in a way like that. But it's about a risk profile, and how far out you can predict stable cash flows.
blocked_again 5y ago
3 Billion USD to get children hooked to garbage content, ruin their brains with cheap dopamine and ruin their lives. And it's perfectly legal. What a shit society we live in.
- prescriptivist 5y ago
  I've never used Tik-Tok but what weirds me out is it seems like there are a ton of people in their early middle to late middle ages desperately making meme videos to try to capture the attention of all these children. It's grotesque.
  - parhamn 5y ago
    Children? Everyone I know has one.
    - prescriptivist 5y ago
      I didn't mean it in a "think about the children" sense, I was more responding to OP. It's hard for me to imagine adults spending their time watching these stupid clips constantly but you are right, it's not just limited to children.
    - syshum 5y ago
      No one I know has TikTok.... I still can not understand how we moved to a point where Vertical Video is acceptable in civil society
      - jermeh 5y ago
        When the most accessible form factor for a screen is portrait in orientation, it's kind of inevitable.
      - kflzufkrbzi 5y ago
        For some kind of videos vertical is just better, for others horizontal. I have a phone and I have a vertical secondary screen on my desktop so I can watch vertical videos without issues. Never quite understood why some people get so upset at vertical videos.
codingdave 5y ago
> "to refinance its debt" So I take that to mean that this is not a new loan of $3B, they are already that far underwater, and are refinancing for better terms.
- spyke112 5y ago
  As I understand it they have already borrowed around $1B, and now because of the lower interest rate, they are able to secure a bigger loan that they'll use to pay back the original and then still have a bucket of cash, at a lower interest. I don't know about the US, but here in Denmark it has been a common "trick" in mortgage financing as the interest rate dropped over the last couple of decades. But as with all taking on debt to pay off debt, it's like wetting yourself.
  - ta988 5y ago
    The best part is what happens when they cannot refinance anymore. There is a wall in front of the car, but speeding is fun, so why not accelerate a bit more.
    - tsjq 5y ago
      >The best part is what happens when they cannot refinance anymore. they'll 'exit' before that by IPO
      - adventured 5y ago
        ByteDance is barred from IPO'ing internationally and possibly domestically as well. They wanted to and the CCP would not allow it, they capitulated and backed off their IPO plans (Didi by contrast went forward against the wishes of the CCP, and now Didi is being dismantled and nationalized in response). It's part of the new cultural revolution going on in China, they're restricting prominent companies more aggressively, for purposes of control, and that includes how and when they're allowed to IPO.
        5y ago
the_duke 5y ago
ByteDance had 37B in revenue in 2020. A 3B refinancing deal - done at a time of very favorable interest rates - is really a non-story.
- iamgopal 5y ago
  Any idea exact interest rate ? low means in single digit ? 10 ? 4 ?
  - pphysch 5y ago
    The interest rate at which large banks can borrow USD is officially 0-1% and effectively negative due to massive quantitative easing.
    - stingraycharles 5y ago
      But that is not the rate at which they will lend the money to ByteDance, at all. Still has a significant risk involved.
      - pphysch 5y ago
        It's close to the base rate. It's not a payday loan...
- alexfromapex 5y ago
  Except it’s partially-owned by China and there is a possibility that they’re deliberately trying to pull money out of the US economy
  - Scoundreller 5y ago
    More likely trying to get money out of China. Getting a US loan against your Chinese assets is a good way to do that.
- oliwarner 5y ago
im-poor 5y ago
This is such a bad idea for the banks. ByteDance has plenty of money. This is a political move to create domestic impact if the U.S. ever wants to ban TikTok again, which almost happened under Trump.
- varsketiz 5y ago
  Not sure why this is being downvoted? It makes sense to me that ByteDance wants non-China banks to have skin in the game and share the risk that way.
gigatexal 5y ago
if you're printing money like they are of course you would refi debt in the stupid low interest world we live in
Bayart 5y ago
>ByteDance had been exploring a public listing in the beginning of 2021, sources have told Reuters, but in April the company said it had no imminent plans for an initial public offering. Has ByteDance been put on the waiting list by the CCP or is it cold feet from looking at Ant Group ?
- rchaud 5y ago
  Why dilute ownership if banks can already provide the capital without the hassle of an IPO?
  - rm_-rf_slash 5y ago
    So founders can cash out and park their money in a safer place than CCP China.
xyzzy21 5y ago
The hard Xi-driven return to Maoism has dried up both funding and operational latitude for most large Chinese companies - tech or otherwise. Given Xi's family background, combined with his provincial lack of nuance, this isn't remotely surprising.

72 points by spyke112 5y ago

dotcoma 5y ago

$3B, or $4B, or perhaps $5B, they are not sure.

ta988 5y ago
That's what they want based on some artificially made numbers saying "hey look our growth is exponential it will never stop come play with us". Now the banks will have to decide if they are at risk of being the ones with the bullet in the chamber of this russian roulette debt game.

oenetan 5y ago

http://web.archive.org/web/20210908121925/https://www.reuters.com/technology/bytedance-talks-borrow-up-5-bln-information-2021-09-08/ http://web.archive.org/web/20210908121925/https://www.reuter... https://ghostarchive.org/archive/Eo0an https://ghostarchive.org/archive/Eo0an

benjaminwootton 5y ago

Why don’t we see more large debt rounds, considering interest rates are so low? Are they just not publicised as much as equity, or could even the largest unprofitable unicorn not raise and service a $5 billion debt?

rchaud 5y ago
Unicorns have something better than a bank loan; interest-free VC money that costs nothing but equity, which itself is effectively worth $0 otherwise.
- throwthere 5y ago
  That equity ends up being really expensive when unicorns ipo. Unicorns generally don’t raise non-convertible-debt because they simply can’t find lenders willing to take single digit interest rates coupled with even a small chance of failure.
  - rchaud 5y ago
    Isn't the expensive-ness an opportunity cost than a real cost? If I sell a 10% stake for $100m, my company is valued at $1bn. If I use that $100m towards growing the business, then both the 10% stake, and the remaining 90% grow in value. If a new investor wants a 10% stake, it's going to cost more than $100m. This is a very oversimplified example, so there are probably parts of the process where financial cost is incurred by the company. But I'm not sure where that happens.
    - umeshunni 5y ago
      Yes, but what if you could borrow $100M at 3% interest collateralized by $200M worth of your equity. Then, when you IPO, you just pay back the $100M * 1.03^t.
- Grustaf 5y ago
  Equity is orders of magnitude more expensive than debt.
ttul 5y ago
Many big financing rounds include debt. When you see that someone raised $500M, perhaps $100M is debt. It levers the equity investment providing an enhanced return, while reducing dilution for existing shareholders.
jollybean 5y ago
There are large debt rounds in businesses that have cash flow, assets and huge operating budgets. The nature of VC/early-stage is such that it doesn't fit the risk profile for debt. Companies have no assets to back the debt with, often no consistent revenue etc.. With the insane valuations that companies are getting these days it seems to me that debt would even be more afraid. Like Clubhouse: 15M users, no revenue, flakey product, no obvious kind of revenue model, $1B valuation. Are you going to loan them $50M at 5% interest? Consider the risk on that. So if your startup sells some funky kind of new wind turbine, and you do the deployments yourself, you might be able to raise debt to pay for the the installs themselves, because you can do the math on that out for a few years. So you could raise debt to finance your sales in a way like that. But it's about a risk profile, and how far out you can predict stable cash flows.

blocked_again 5y ago

3 Billion USD to get children hooked to garbage content, ruin their brains with cheap dopamine and ruin their lives. And it's perfectly legal. What a shit society we live in.

prescriptivist 5y ago
I've never used Tik-Tok but what weirds me out is it seems like there are a ton of people in their early middle to late middle ages desperately making meme videos to try to capture the attention of all these children. It's grotesque.
- parhamn 5y ago
  Children? Everyone I know has one.
  - prescriptivist 5y ago
    I didn't mean it in a "think about the children" sense, I was more responding to OP. It's hard for me to imagine adults spending their time watching these stupid clips constantly but you are right, it's not just limited to children.
  - syshum 5y ago
    No one I know has TikTok.... I still can not understand how we moved to a point where Vertical Video is acceptable in civil society
    - jermeh 5y ago
      When the most accessible form factor for a screen is portrait in orientation, it's kind of inevitable.
    - kflzufkrbzi 5y ago
      For some kind of videos vertical is just better, for others horizontal. I have a phone and I have a vertical secondary screen on my desktop so I can watch vertical videos without issues. Never quite understood why some people get so upset at vertical videos.

codingdave 5y ago

> "to refinance its debt" So I take that to mean that this is not a new loan of $3B, they are already that far underwater, and are refinancing for better terms.

spyke112 5y ago
As I understand it they have already borrowed around $1B, and now because of the lower interest rate, they are able to secure a bigger loan that they'll use to pay back the original and then still have a bucket of cash, at a lower interest. I don't know about the US, but here in Denmark it has been a common "trick" in mortgage financing as the interest rate dropped over the last couple of decades. But as with all taking on debt to pay off debt, it's like wetting yourself.
- ta988 5y ago
  The best part is what happens when they cannot refinance anymore. There is a wall in front of the car, but speeding is fun, so why not accelerate a bit more.
  - tsjq 5y ago
    >The best part is what happens when they cannot refinance anymore. they'll 'exit' before that by IPO
    - adventured 5y ago
      ByteDance is barred from IPO'ing internationally and possibly domestically as well. They wanted to and the CCP would not allow it, they capitulated and backed off their IPO plans (Didi by contrast went forward against the wishes of the CCP, and now Didi is being dismantled and nationalized in response). It's part of the new cultural revolution going on in China, they're restricting prominent companies more aggressively, for purposes of control, and that includes how and when they're allowed to IPO.
      - 5y ago

the_duke 5y ago

ByteDance had 37B in revenue in 2020. A 3B refinancing deal - done at a time of very favorable interest rates - is really a non-story.

iamgopal 5y ago
Any idea exact interest rate ? low means in single digit ? 10 ? 4 ?
- pphysch 5y ago
  The interest rate at which large banks can borrow USD is officially 0-1% and effectively negative due to massive quantitative easing.
  - stingraycharles 5y ago
    But that is not the rate at which they will lend the money to ByteDance, at all. Still has a significant risk involved.
    - pphysch 5y ago
      It's close to the base rate. It's not a payday loan...
alexfromapex 5y ago
Except it’s partially-owned by China and there is a possibility that they’re deliberately trying to pull money out of the US economy
- Scoundreller 5y ago
  More likely trying to get money out of China. Getting a US loan against your Chinese assets is a good way to do that.
oliwarner 5y ago

im-poor 5y ago

This is such a bad idea for the banks. ByteDance has plenty of money. This is a political move to create domestic impact if the U.S. ever wants to ban TikTok again, which almost happened under Trump.

varsketiz 5y ago
Not sure why this is being downvoted? It makes sense to me that ByteDance wants non-China banks to have skin in the game and share the risk that way.

gigatexal 5y ago

if you're printing money like they are of course you would refi debt in the stupid low interest world we live in

Bayart 5y ago

>ByteDance had been exploring a public listing in the beginning of 2021, sources have told Reuters, but in April the company said it had no imminent plans for an initial public offering. Has ByteDance been put on the waiting list by the CCP or is it cold feet from looking at Ant Group ?

rchaud 5y ago
Why dilute ownership if banks can already provide the capital without the hassle of an IPO?
- rm_-rf_slash 5y ago
  So founders can cash out and park their money in a safer place than CCP China.

xyzzy21 5y ago

The hard Xi-driven return to Maoism has dried up both funding and operational latitude for most large Chinese companies - tech or otherwise. Given Xi's family background, combined with his provincial lack of nuance, this isn't remotely surprising.