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August 3, 2016

Alphabet joins $100bn bond market rush, raises $2bn

News: The internet giant plans to use the funds for debt repayment.

By CBR Staff Writer

Alphabet, the parent company of Google, has sold bonds worth $2bn, joining other technology firms which have raised a total of over $100bn in the market this year.

Returning to the bond market after a gap of more than two years, the Internet major sold 10-year notes to retire its short-term debt, a person familiar with the matter told Bloomberg.

The debt yields around 0.68 percentage points above the US Treasuries, the person said.

According to Bank of America Merrill Lynch index data, the yield was less that the 0.8 discussed initially and lower than the average spread of 0.91 percentage points for bonds of similar ratings and maturities.

So far this year, technology companies have been among the top issuers of US investment-grade debt, raising $102.7bn from the bond market, showed the data compiled by Bloomberg.

 Apple, Dell, and Microsoft figure among the top five companies resorting to bond issuance this year.

While Microsoft sold bonds worth $19.75bn this week to fund its planned acquisition of professional networking site LinkedIn, Apple raised $7bn for dividend payments and share buybacks.

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Huge investors’ interest in the deals allowed both the companies to reduce the interest rate to be paid for the securities.

In a conference call with investors last week, Alphabet chief financial officer Ruth Porat said that “the technology company may opportunistically access the market to refinance short-term debt known as commercial paper and lock in low bond yields. “

Global rating agency Moody’s Investors Service has given a rating of Aa2, its third-highest grade, for the bonds.

Technology firms have been taking the bond market route to partially reduce taxes on cash from other countries. The companies are required to pay of tax of 35% on the funds repatriated to the US.

 As of 30 June, Alphabet held cash reserves of $78.5bn.

Porat said nearly Google’s cash reserves stood at $30bn in the US as of the end of June quarter.

In its last bond sale in 2014, Google issued $1 billion of 10-year notes for general corporate purposes, including debt repayment, the publication reported.

Google increased its revenue by 21% over last year in its Q2 results bringing revenue to $21.5bn. Net income was just shy of $5bn at $4.9bn, up from $3.9bn a year ago.

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