NEW YORK: Alphabet Inc hired banks for what would be a debut offering of Australian dollar bonds, as US tech firms flood credit markets with debt to fund investments in artificial intelligence (AI).
The US firm may sell the notes across four maturities including as long as 20 years, according to an emailed statement from Australia & New Zealand Banking Group, one of the mandated banks.
Alphabet priced US$25bil of bonds in the US dollar market earlier this month and has also issued notes in Swiss francs, British pounds, euros, Canadian dollars and Japanese yen in 2026.
The company also recently raised nearly US$85bil through an equity offering.
Together with US peer firms like Meta Platforms Inc, and Amazon.com Inc, US tech giants have raised hundreds of billions in dollars and other currencies this year to fund their AI ambitions, but signs of investor fatigue are emerging after the onslaught of deals.
In the US high-grade market, investors pulled about 36% of their initial orders for bond sales on average last week after final pricing was squeezed, according to data compiled by Bloomberg.
“Alphabet and its hyperscaler peers are funding capital expenditure commitments that are running well ahead of the free cash flow generation of the underlying businesses funding them,” said Helen Mason, head of credit at Schroders’ Australian unit.
“That’s a structural mismatch bondholders should be assessing.”
Mason said her firm would need to be comfortable that the new issuance is fairly priced for the risk inherent in the issuer and the sector as a whole, before considering whether to participate.
While Big Tech’s investments in artificial intelligence have helped power the stock market to record highs again of late, higher yields are adding to a debate about risks surrounding the ability of the firms to generate profits from those investments.
Still, with issuance by tech firms in the Australian market limited, some fixed income managers expect concerns about the global debt deluge to have less of an impact on Alphabet’s potential offering.
“In our local market, we’ve got effectively zero technology exposure at the moment. This is Alphabet’s first deal, this is a first hyperscaler deal,” said Chamath De Silva, head of fixed income at Betashares.
He is expecting Alphabet to sell between A$4bil and A$6bil of bonds in total. — Bloomberg
