Meta Announces First-Ever Bond Offering Amid Push to Fund VR Projects

Facebook-parent Meta said on Thursday it would make its first-ever bond offering, at a time when the social media company is making massive investments to fund its virtual reality projects. Meta did not disclose the size of the offering but said it would use the proceeds for capital expenditures, share repurchases, acquisitions or investments.

The company received an ‘A1’ rating from Moody’s and an ‘AA- rating’ and a ‘stable’ outlook from S&P. Meta is selling four tranches of bonds with maturities ranging from five years to 40 years.

Among big technology companies, Meta is the only one that does not have any debt on its books. Tapping the market now would give it more financial room as it tries to fund some expensive overhauls, including a bet on augmented and virtual reality technology, investors who heard its presentation for the bond offering on Tuesday said.

It might also be a rare opportunity to do so relatively cheaply in the current market environment. Corporate bonds have rebounded in the past month after a rout earlier this year, as investors hoped the US Federal Reserve’s fight against inflation through rapid rate increases was starting to have some impact.

This week the US investment grade primary bond markets have rebounded, with companies raising more than $38 billion (roughly Rs. 3,01,000 crore), making it the eighth busiest week of the year, according to Informa Global Markets data.

Other tech giants such as Apple and Intel also issued bonds earlier this week, raising $5.5 (roughly Rs. 43,600 crore) billion and $6 billion (roughly Rs. 47,500 crore), respectively.

Bankers and investors said such issuance windows may be rare in coming months. One banker in charge of a bond syndicate desk at a US bank said credit spreads could widen later this year, increasing funding costs.

Meta’s bond issuance will come after the company issued a gloomy forecast and recorded its first-ever quarterly drop in revenue, with recession fears and competitive pressures weighing on its digital ads sales.

Its free-cash flow has been depleting as it charges ahead with its metaverse plans, which led the change in its name to Meta from Facebook last year.

In the second quarter ended June 30, Meta had $4.45 billion (roughly Rs. 35,200 crore) in free cash flow, compared with $8.51 billion a year ago (roughly Rs. 67,400 crore) and $8.53 billion (roughly Rs. 67,600 crore) in the prior quarter.

Chief Financial Officer Dave Wehner said on a post-earnings conference call that company had a “substantial amount” in its buyback program and expects to continue with buybacks as part of its capital allocation strategy.

© Thomson Reuters 2022