(May 5): Alphabet Inc has kicked off its latest megabond deal as it returns to the euro market just months after selling nearly US$32 billion of dollar, sterling and Swiss franc-denominated debt.
The Google parent is selling at least €3 billion in bonds across six tranches, according to a person with knowledge of the matter. Initial price talk on the longest portion of the deal — a note maturing in 2063 — is in the 205 basis point area above midswaps, they added, asking not to be identified because the information is private.
Alphabet said last week that it’s planning capital expenditures of as much as US$190 billion this year as it invests heavily in data centres critical to its artificial intelligence ambitions. Proceeds from Tuesday’s offering — as well as from any concurrent offering — will be used for general corporate purposes, which may include the repayment of outstanding debt, the person with knowledge of the deal said.
Alphabet, along with Meta Platforms Inc, Microsoft Corp and Amazon.com Inc, is planning to spend as much as US$725 billion this year on AI data centre equipment and other capital, increasing their earlier projections.
“These companies are going to become a bigger and bigger part of the bond market, just like they did in the equity market,” said Ian Horn, a portfolio manager at Muzinich & Co Ltd, speaking about cloud-computing firms in general.
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Alphabet’s previous bond sale in February raised US$20 billion in its biggest-ever US dollar bond sale — more than the US$15 billion initially expected, after racking up orders that peaked at US$103 billion. It also sold debut deals in Switzerland and the UK, including a rare sale of 100-year bonds — marking the first time a tech company has priced such an offering since the dot-com frenzy of the late 1990s.
Still, with around US$300 billion of various types of AI debt already sold, some more recent deals by hyperscalers have shown signs of investor fatigue, with bankers having to offer more incentives and higher compensation to investors who are spoiled for choice.
Meta Platforms Inc priced a US$25 billion bond sale on April 30 as its shares suffered their biggest decline in six months on concern that its AI spending may not generate returns. Nearly all of the six portions of the deal were priced at higher risk premiums than an October sale by the Facebook parent, signalling that investors are demanding more compensation while peak orders were also lower than in the prior sale.
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There are concerns about how the bond issuance will be absorbed by the market and “you’re getting paid for that but it’s not reflective necessarily of the credit fundamentals,” Muzinich’s Horn said. “That could be a nice opportunity to add spread without really having to go to riskier names.”
Alphabet’s latest euro-currency offering, which is expected to be priced later on Tuesday, is being arranged by Barclays plc, BNP Paribas SA, Deutsche Bank AG and HSBC Holdings plc.
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