How investors are reacting as Alphabet launches landmark 100-year bond in U.K.

By Jules Rimmer

Alphabet launches Swiss franc and sterling bond offerings

Alphabet upped their proposed $15 billion bond issuance in the U.S to $20 billion after a surge in demand and the bonds traded up afterwards in the secondary market.

Alphabet on Tuesday launched a bond with a 100-year maturity to British investors, a rare but not unprecedented offering.

After overwhelming demand for its $20 billion U.S. dollar bond issue Monday Alphabet sought to diversify its borrowing profile Tuesday by launching bond offerings in pounds sterling and Swiss franc. The issuance in both currencies was distributed across multiple tenors but was most notable for the offer of GBP bonds with 100-year maturity.

Bruno Schneller, managing partner at Erlen Capital Management in Zurich, thinks this is "smart liability management" from Alphabet's perspective even if the investor appeal is narrow.

So-called century bonds are rare. No technology company since Motorola in 1997 has attempted it. while in recent years issuers like the University of Oxford and the Wellcome Trust are among the few who have succeeded in such long-term financings in the U.K. market.

Sovereign issuers like Argentina and Austria have also tapped the market at these tenors. The longest duration U.K. government bond, or gilt, is for 50 years BX:TMBMKGB-50Y, which yields 4.85%.

A fixed-income manager who didn't want to be named, however, said "there is often a top of the market bell that rings when people issue 100 year bonds."

Schneller argues that for Alphabet (GOOG) this kind of ultra-long duration funding makes perfect sense in the current environment given rates are reasonable, especially if inflation averages anywhere near long-term target. He also points out that Alphabet's profile, its strong balance sheet, cash generation and market access, "it is one of the few corporates that can credibly issue at that tenor."

But who wants to buy a century bond? "For investors, the appeal is more nuanced," Schneller says.

A bond with such a long maturity carries significant duration risk, that rising rates that could move around a lot over that time frame. Schneller suggests pension funds with long-dated liabilities may be attracted while other funds may find a yield premium for a quasi-sovereign credit interesting but for traditional investors the risk-reward profile isn't compelling.

Moreover there is the longer-term issue of technological change and evolution that may go through many cycles in a hundred years.

The sterling bonds are offered in five tranches spanning from 3 to 100 years, and the books are run by Goldman Sachs, Bank of America, JPMorgan and NatWest.

The Swiss franc issuance is also five tranches stretching from 3 years to 25 and those books are run by BNP Paribas and Deutsche Bank.

-Jules Rimmer

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