Alphabet Issues $10 Billion Bond At Low Borrowing Costs

Google’s owner Alphabet Inc. sold $10 billion in bonds in the corporate debt market as the internet search giant took advantage of low borrowing costs.

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Of the six-tranche $10 billion bond issue, the $1 billion in 2025 notes were issued at a coupon of 0.45%. Google’s (GOOGL) parent company said that as part of the $10 billion debt offering, it issued $5.75 billion in sustainability bonds, the largest sustainability or green bond by any company in history.

Although a number of companies have issued green bonds directed solely to environmental uses, sustainability bonds differ in that their proceeds support investment in both environmental and social initiatives.

“Such bonds are an emerging asset class and we hope this transaction will help develop this new market,” said Alphabet and Google CFO Ruth Porat. “We’re encouraged that there was such strong demand for these bonds from investors – they were significantly oversubscribed.”

The proceeds from these sustainability bonds will fund ongoing and new projects that are environmentally or socially responsible such as racial equality, affordable housing, and clean energy. Moreover, Alphabet seeks to fund small businesses and organizations impacted by Covid-19.

The remainder of the $10 billion in debt sold will be used for general corporate purposes, including acquisitions, Alphabet said.

Meanwhile, Google shares have been on a steep recovery path since dropping to a low in March and are now trading 11% higher than at the start of the year. After the search giant beat 2Q earnings last week, analysts still see some upside potential in the shares from current levels.

JMP Securities analyst Ronald Josey raised the stock’s price target to $1,700 (15% upside potential) from $1,500 and maintained a Buy rating, saying that the company’s Q2 revenue and operating profits were “encouraging” and July trends have continued to improve as Google’s Cloud and Play Store show strong growth.

Looking ahead to after the coronavirus pandemic, Josey believes that Google is well positioned to “emerge stronger given its size, scale, and diversity across its business model”.

Overall, the Wall Street outlook on the stock remains bullish. The Strong Buy analyst consensus boasts 29 Buys versus 3 Holds. The $1,727.48 average analyst price target indicates shares have room to advance almost 17% over the coming year. (See Alphabet’s stock analysis on TipRanks)