> Alphabet’s EUR bond drew EUR 17 bn in orders despite the stock rout

Nasdaq-listed tech conglomerate and Google’s parent company Alphabet raised EUR 6 bn (USD 6.7 bn) in a bond sale yesterday, drawing orders of about EUR 17 bn, just days after the stock market gave it the worst session in its history, Reuters reports, citing a memo from one of the managers. Shareholders had taken a very different view the Thursday before: the stock fell more than 12% after results showed AI spending eating into liquidity, and tech names went on to shed more than USD 1 tn in value on Friday, according to NBC News.

The order book held up: Yesterday’s transaction was covered roughly 2.8 times, by our math. That matches May, when Alphabet sold EUR 9 bn, according to Reuters, after bids passed EUR 25.2 bn, Bloomberg reported at the time. However, it falls well short of February, when a USD 20 bn sale closed on a USD 94.5 bn book, nearly five times covered, according to IFR. Alphabet came back for a roughly USD 25 bn, 10-tranche USD offering in August, the same publication noted.

The spending behind it hasn’t slowed. Alphabet guides capex of up to USD 205 bn this year. It also has USD 130.5 bn in signed data center leases that haven’t started and sit off its balance sheet, according to an SEC filing cited by Reuters.

SOUND SMART- Shareholders and bondholders are asking different questions. Equity investors want proof that USD 205 bn a year earns a return. Bondholders need the coupons paid, and S&P rates Alphabet AA+ with adjusted leverage of 0x. That’s why the book fills while the stock slides. The risk the bond price doesn’t reflect is the leases: USD 130.5 bn in commitments that will behave like debt once they start, without showing up in the leverage numbers creditors are underwriting.

The pattern goes beyond Alphabet: OpenAI cut its funding target to as much as USD 20 bn at a lower USD 1.25 tn valuation, and investors from the UAE are leading the round alongside Coatue, CNBC reported. The company had secured only about USD 11 bn by its deadline, according to The Wall Street Journal. As US equity investors retreat, the AI buildout is being funded more by creditors and by Gulf capital. Closer to home: Saudi Arabia’s Humain is taking a different approach to funding its AI buildout. The company plans to secure customers before borrowing against their contracts, CEO Tareq Amin told EnterpriseAM last month. That gives lenders contracts to lend against rather than demand that has yet to show up: “when you have bankable off-take [transactions], raising capital for me is not an issue,” Amin told us. The same week, Alphabet’s freecash flow went to negative USD 9.07 bn and search growth slowed to 12%, which is what actually sent the shares down 12.6% on Thursday.

MARKETS THIS MORNING-

South Korea’s Kospi recovered from early losses to close 2.2% higher on Monday, driven by institutional buying, even though US chip stocks slumped on Friday. The bad news was reportedly already priced in, and strong October chip exports and signs of easing Middle East tensions lifted sentiment. In Japan, markets are closed on Tuesday for Culture Day, a national holiday, so the Nikkei 225, which fell 0.3% on Monday, will not trade.

THE CLOSING BELL-

The DFM rose 0.6% yesterday on turnover of AED 507.9 mn. The index is down 5% YTD.

In the green: Emirates Reem Investments Company (+7.8%), Talabat Holding (+4.1%), and Emaar Development (+3.6%).

In the red: Dubai National Ins. & Reinsurance (-4.7%), Lunate S&P UAE UCITS ETF - Share A - ACCUMLATING (-3.2%), and Aramex (-2.9%).

Over on the ADX, the index rose 0.3% on turnover of AED 763.8 mn. Meanwhile, Nasdaq Dubai down 1.4%.