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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In 30 years, Google has gone from not-yet-existent to part of the furniture. To flaunt this fact, parent company Alphabet recently did something that’s typically the preserve of businesses that expect to be around for a long time yet: it issued some 40-year bonds.
The internet search group’s debt sale this month is its first in five years. The longest-dated paper will not come due until 2065, by which time the US population will be nearly 400mn and pop icon Taylor Swift will be 75. As well as tapping the US market, Alphabet also raised its first ever euro bonds, totalling €6.75bn.
Tech companies are not strangers to far-out borrowing. IBM issued a 100-year bond in 1996; Microsoft, Amazon, Apple and Intel are among those that have sold 40-year paper. Alphabet’s new 40-year bond is its second. Last November, gaming-app ad broker AppLovin sold $550mn of senior notes due in 2054, a major flex for a company that only went public in 2021.
Raising money in Europe adds a new twist. Again, IBM and Microsoft have been here before. But market conditions have revived the ‘reverse Yankee’ trade, where US companies issue debt in European markets. There’s a globalist logic to this. Companies like Alphabet have operations and revenue around the world. If some customers are paying in euros, why not have liabilities in the same currency?
More importantly, as US tourists cramming into the Louvre to peep at the Mona Lisa know, Europe feels cheap. The 2.25 percentage point gap between the two markets’ central bank overnight rates is double the average this century. Reverse Yankees are 30 per cent of euro issuance this year, PwC data shows; usually it’s below 20 per cent.
This reflects, in part, an imbalance of supply and demand for long-term assets. Insurance companies want to amass set-and-forget investments that match their far-future liabilities. Investors try to spread their sector risk too. Alphabet is the only US tech company to have issued euro paper due 20 or more years from now, based on a Lex analysis of LSEG data.
It’s likely other big disrupters will follow Alphabet’s example. Perceived staying power, manifested through a well-developed bond curve, is a useful badge for companies investing hundreds of billions in artificial intelligence data centres part-funded by debt. Lenders are willing to chip in, but ideally they want to know that the customers of those data facilities will be — if not quite as solid as sovereign borrowers — as good as their word.
Ultimately, though, reverse Yankee bonds are a status symbol, as IBM’s century bond was back in the day. Alphabet doesn’t need the money; nor do other members of the so-called Magnificent Seven. But expect more of these large tech bonds, which convey membership of a pantheon with sway over global capital markets. Growing like a whippersnapper is all well and good; few companies can pull off gravitas at the same time.
