Samsung plans dollar bonds for chips

Samsung Electronics, the world’s largest maker of computer memory chips, plans to issue its first U.S. dollar-denominated bonds since 2004 to expand production of processors used in mobile devices including Apple’s iPhone.

The company has sent requests for proposals to banks to borrow as much as $1 billion to expand production capacity at its factory in Austin, Texas, James Chung, spokesman for Samsung, said yesterday.

The bonds will be issued by Samsung’s U.S. unit and may have maturities of five years, Chung said.

Samsung Electronics sold $100 million of floating-rate three-year notes placed privately with investors in 2004, according to data compiled by Bloomberg. Its last publicly-sold dollar bonds that were not convertible into equity were issued in 1998, the data showed.

Samsung joins cash-rich technology companies including Google in entering the bond market as borrowing costs fall, making it cheaper for the company to raise funds to meet surging smartphone demand. Samsung’s credit rating, on par with that of Korea, suggests strong demand for its bonds, said Louis Shin, a credit analyst at Woori Investment & Securities.

“Samsung will probably receive very positive feedback from global investors,” said Shin. “Investors are thirsty for companies with good credit.”

The yield on benchmark 10-year U.S. Treasury bonds reached 1.87 percent on Jan. 13 in New York, the lowest level since Dec. 20, after dropping nine basis points, or 0.09 percentage points, for the week, according to Bloomberg Bond Trader prices.

Borrowing costs for global industrial companies were at the lowest level in about two months as of Jan. 13, according to the Bank of America Merrill Lynch index.

Samsung, the exclusive maker of Apple-designed processors powering the iPhone and the iPad tablet computer, fell 1.5 percent to 1,030,000 won at the close of trading in Seoul. The Kospi dropped 0.9 percent.

Moody’s Investors Service has a “stable” outlook on Samsung’s A1 rating, the fifth-highest of 10 investment grades.

Samsung had 22 trillion won ($19 billion) in cash and equivalents as of Sept. 30, according to data compiled by Bloomberg. Google, which planned to issue $3 billion in its first bond sale, had $43 billion in cash and equivalents, the data showed.

Samsung began running the Austin factory’s production of mobile phone processors at maximum capacity in October. The Korean company may almost double spending on its logic chip business.

Bloomberg