a 100- year Bond?

21 July 2020

2328

Accounting & Finance

a 100- year Bond?

In some time ago, we were acquainted with several investment instruments. One of them is bonds. To remind us of what bonds are, bonds are debt securities in which the issuer of these bonds beside will pay the principal of the debt at maturity date but will also pay the coupon once within a certain period (for example in six months or one year) during the period. certain (tenor).

Now, these bonds have various tenors. There are 3 years tenor, 5 years, 10 years, even 30 years. For your information, the Indonesian government has recently issued global government bonds with a tenor of up to 50 years, you know! However, it turns out that there is also a bond that has a tenor of up to 100 years! Let's look at some examples of companies that have issued a bond with a tenor of 100 years. And for what purpose do they issue that with such a very long tenor?

1. The Walt Disney Company

The Walt Disney Company or Disney in 1993 issued bonds with a coupon of 7.55% per year and a tenor of 100 years. It means these bonds will be repaid in 2093 or other words, the buyer of these bonds will get the principal of the debt 100 years after purchase (assuming they are not selling until maturity). However, Disney provided a provision on the sale of these bonds, namely that Disney could buy back the bonds at any time after 30 years. The use of proceeds from the issuance of debt securities includes, but is not limited to, outstanding debt payments, capital expenditures, Disney Land development, and the gradual repurchase of outstanding shares in the market.

Picture Source: https://www.belfastlive.co.uk/news/uk-world-news/disneyland-paris-holidays-boost-french-15491378

2. Pemerintah Austria

Recently the Austrian government-issued bonds with a tenor of 100 years with a coupon rate of 0.85%. Three years earlier, the Austrian government had done the same but with a higher coupon rate. During a pandemic and an era of low-interest rates, this can be used as a momentum for countries to seek funding, one of which is to finance these state expenditures. With an AA + rating (Bloomberg Composite), this bond is in demand by investors, especially pension funds, and insurance which not only will get fixed returns but also finance future cash flow as well.

Image Source: https://www.britannica.com/place/Austria

3. The Coca Cola Company

The company, which was founded in 1886, issued bonds with a tenor of 100 years in 1993, the same year when The Walt Disney Company (TWDC) issued bonds with a similar tenor. Same as TWDC, The Coca-Cola Company (TCCC) in its prospectus stated that some of these bonds sales value will be used for the public interest of the company, including the payment of short-term debt and a program to buy back outstanding shares. Additionally, the company stated that funds that are not used in the short-term period will be placed in short-term securities. As we all know, TCCC is a company owned by Warren Buffet. This company is a multinational company that has been operating for more than 100 years.

Image source: https://www.quora.com/In-2013-Coca-Cola-slipped-to-third-place-behind-Apple-and-Google-on-Interbrands-list-of-best-global-brands-How-can-a-company-that-relies-on-sales-of-sugary-drinks-make-a-compelling-case-that-it-also-cares-deeply

4. Oxford University

As the oldest university in the English-speaking world, Oxford University has also issued global debt securities in 2017 with a tenor of 100 years or will mature in 2117. As a university, some of the income it earns comes from new student admissions, research & cooperation funds, investment, and donations. However, there is a risk of disrupting revenue, such as the value or limit of import duties that may change. This is because the university does not have control over the tuition fees but by (one of them) the British government. Although 100-year bonds can be categorized as a “longer” debt than usual, Oxford University itself has existed since at least the 11th century. Oxford notes are rated AAA (Triple-A) from rating agency Moody's.

Image source:: https://scholarshipfellow.com/rhodes-scholarships-at-oxford-university-for-international-students-2020-learn-in-the-uk/

5. Federal State of North Rhine-Westphalia, Germany

Not only the government/state or companies but state governments in Germany have also issued debt securities with a maturity of 100 years. The state of North Rhine-Westphalia (NRW) issued “ultra” long tenor notes several years ago intending to fund the state government's NRW program. In 2016, NRW was a state with a GDP per capita that was higher in value than the Swiss country. Also, NRW is the location of 18 headquarters of Germany's 50 largest companies such as Bayer, Deutsche Post and ThyssenKrup. NRW has an AA + rating as seen from the Bloomberg Composite.