Tesla Motors Inc (TSLA) Bond Offering A Positive For Broader Economy

Tesla Motors Inc (TSLA) Bond Offering A Positive For Broader Economy
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Tesla Motors Inc (NASDAQ:TSLA), which is already proving to be the sole cause for reviving the battery powered vehicle, is now being looked at as a possible positive precursor for the broader economy thanks in large part to the convertible-bond offering last week that spread positivity in the market. Last week, Tesla raised $2 billion from the sale of a convertible debt, which can be exchanged for shares.

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Tesla has set an example for others to follow

For Tesla Motors Inc (NASDAQ:TSLA), the offering raised 25% more than originally planned, and was the second-largest offering of convertible bonds in the U.S. in the past two years, according to the data from Ipreo. The proceeds from the offering would be utilized to fund the $5 billion “gigafactory,” where Tesla plans to manufacture batteries to meet the growing demand of its vehicles.

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Thomas Tzitzouris, head of fixed-income research at Strategas Research Partners, believes there is a possibility of more companies following the example set by Tesla to raise money from the market to fund capital expenditure, according to a report from the Wall Street Journal by Steven Russolillo.

According to Tzitzouris, it would be no surprise if other companies follow the model set by Tesla Motors Inc (NASDAQ:TSLA) as presently, stocks markets are around the record levels and the number of companies requiring funds to finance their investment plans is also growing.

2014 has a better “appetite for expansion”

In a note to clients, the expert says that generally a firm goes for convertible bonds when there is a need for broadening the capital stock expecting strong growth opportunities ahead, but “perhaps too uncertain to garner the otherwise cheap financing rates offered up to unsecured investment grade borrowers.” The move, according to Tzitzouris, also reflects the confidence of the management over the long term growth prospects.

Tzitzouris believes that such an approach has been missing in the GDP numbers post-crisis landscape. However, the expert does not fully consider Tesla Motors Inc (NASDAQ:TSLA) as “a signal of a rising appetite for corporate Capex,” instead consider it as a positive sign that despite weak first quarter data and volatility in emerging markets, corporate are still positive on their capital spending plans.

“Thus, at the very least, issues like this, which seems to have been very well digested,” reflects that 2014 should be stronger than 2013, when it comes to “appetite for expansion,” and bond markets “stand ready to facilitate legitimate growth opportunities, even ambitious ones like the Tesla venture,” says Tzitzouris.

On Wednesday, Tesla Motors Inc (NASDAQ:TSLA) shares closed at $252.66, down 0.86%.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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