Samsung May Sell First Overseas Bonds Since 1997 to Finance Chip Factories

By Jun Yang and Taejin Park - Jan 16, 2012 1:45 PM GMT+0700

Samsung Electronics Co. (005930), the world’s largest maker of computer memory chips, plans to issue its first overseas bonds since 1997 to expand production of processors used in mobile devices including Apple Inc.’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, a Seoul-based spokesman for Samsung, said by telephone today, confirming a report in the Korea Economic Daily yesterday. The bonds will be issued by Samsung’s U.S. unit and may have maturities of five years, Chung said.

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

“Samsung will probably receive very positive feedback from global investors,” Shin, a credit analyst at Woori Investment in Seoul, said by telephone. “Investors are thirsty for companies with good credit.”

Lower Treasury Yields

The yield on the benchmark 10-year U.S. Treasury bond 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 point, 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 Bank of America Merrill Lynch index.

Samsung, the exclusive maker of Apple-designed (AAPL) processors powering the iPhone and iPad tablet computer, fell 1.5 percent to 1,030,000 won at the close of trading in Seoul. South Korea’s Kospi index 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 show.

Samsung began running the Austin factory’s production of mobile-phone processors at maximum capacity in October. Third- quarter industrywide shipments of smartphones increased 44 percent from a year earlier, according to Strategy Analytics Inc.

The Korean company may almost double spending on its logic- chip business, which oversees manufacturing of Apple’s A4 and A5 processors, to a record 8 trillion won this year, said Shin Hyun Joon, a Seoul-based analyst at Dongbu Securities Co.

Operating profit at the business probably more than doubled in 2011 and may increase 82 percent this year, according to Korea Investment & Securities Co.’s estimate.

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Taejin Park in Seoul at tpark31@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net