Top chipmaker sells dollar bond in defiance of murky sector outlook

SINGAPORE (BLOOMBERG) – Taiwan Semiconductor Manufacturing Co (TSMC) is selling its second dollar bond since April, a deal that may offer clues about investor appetite at a time of growing uncertainties about the chip industry’s outlook.

The world’s largest contract chipmaker is marketing a two-part offering, with initial price guidance set at 150 basis points above US Treasuries for the five-year tranche and 200 basis points for the 10-year portion, according to people familiar with the deal, who requested anonymity discussing a private matter.

The sale is attracting attention after the firm’s major client, Apple, announced plans to slow hiring and spending growth next year to cope with a potential economic downturn.

TSMC also warned last week about delaying capital expenditure, adding that costs for planned construction of overseas plants have proven very high. The offering also breathes some life back into a sleepy Asian credit market, following a series of interest rate hikes by the United States Federal Reserve that have pushed up borrowing costs significantly.

The initial price guidance on the upcoming bond, which follows the firm’s US$3.5 billion (S$4.9 billion) four-part note in April, translates into yields at least 50 basis points above those implied on TSMC’s comparable existing dollar notes, according to Bloomberg-compiled data.

The chipmaker’s Aa3 credit rating is constrained by the capital-intensive and cyclical nature of the semiconductor industry, Moody’s Investors Service said in a report. TSMC has to incur significant capital expenditure to fund continuous technological development and meet rising demand from existing and new customers, it added.

TSMC has said that an envisioned US$12 billion plant in Arizona may cost more than originally anticipated. In addition, chipmakers around the world are grappling with soaring costs for raw materials and shipping because of the war in Ukraine and lingering bottlenecks in global supply chains.

The chip industry continues to enjoy fast growth, although it would be very volatile as it is extremely cyclical, according to ANZ senior Asia credit strategist Ting Meng.

“TSMC can better weather the industry cycle given its dominant position, and it continues to enlarge market share,” the analyst wrote in a note.