Ed Brooke from the Australian private wealth investment and advisory firm Escala has provided the following commentary on Alphabet’s kangaroo bond issuance.
Escala was a significant participant with particular interest in the 3-year to 5-year tranches on behalf of its wealthy clients, who have an appetite for liquid corporate bonds that generate a reasonable return above the cash rate.
Returns of around 6% at very low risk are a good option for clients who do not want to sit in term deposits or lock up capital in assets like private credit.
Against the backdrop of three RBA rate raises in a year and a higher cash rate, the risk-versus-return profile looks strong.
Alphabet is a highly rated global business and a fantastic diversifier for wealthy Australians as domestic credit portfolios tend to be biased towards financials. The issue is large and liquid, which fits the bill for our clients.
Also read: A$5.5bn: Australia’s Corporate Bond Market Just Grew Up
Other hyperscalers will certainly be looking at this closely to see how it’s received. It’s a natural fit for a market driven by strong demand for both domestic and Kangaroo bonds.
Australia’s bond market is extremely liquid, making it highly attractive for the likes of Alphabet.
The 20-year tranche was outside the mandate for our clients. Others who participated in it likely considered it relative to local semi-government and state debt. It may have suited those seeking to diversify away for sovereign exposure.
For some, the question likely became: do we hold a government bond, or do we hold Google?”
