Nearly a year after its record $17bn bond sale, Apple is laying the groundwork for another blockbuster debt sale of at least as much that could rank as the second largest of all time.
When the world’s most valuable company released better than expected quarterly results last week, it said it planned to increase its share buyback from $60bn to $90bn, funded by domestic and international bond sales.
More
On this topic
IN Technology
Apple will use proceeds from the debt sale to fund the buyback rather than tap its $150bn cash pile. About $130bn of that cash is held overseas, 88 per cent of the total, and returning it to the US would lead to a tax charge of up to 35 per cent.
A foreign debt sale would likely target the eurozone, where interest rates are lower than in the US, and diversify Apple’s debt investor base.
During Apple’s earnings call last week, Luca Maestri, Apple’s incoming finance chief, warned that repatriating offshore cash would incur “significant” tax consequences.
Mr Maestri, who joined Apple after stints at General Motors, Nokia Siemens Networks and Xerox, said the breakdown of markets and currencies for its debt sale would be decided later in the year. Apple was likely to raise “an amount of term debt financing similar to what we issued in 2013”, namely $17bn, he said, adding preparations had also been made to tap the commercial paper market for short-term liquidity.
Apple sold bonds worth $17bn 12 months ago, at the time the world’s largest corporate debt sale, with demand for the offering topping $50bn. But that jumbo sale was eclipsed five months later when Verizon, the US telecoms company, sold $49bn worth of bonds. Those proceeds were used to finance its $130bn acquisition of the 45 per cent stake in Verizon Wireless it did not already own.
Apple’s domestic cash has run down from $39bn to $38bn since it paid its first dividend in August 2012 and Mr Maestri said he wanted to retain “sufficient domestic liquidity to grow the business and execute capital expenditures and acquisitions”.
Tim Cook, chief executive, said Apple was “on the prowl” for more acquisitions, after buying 24 companies in the past 18 months and he was not averse to large acquisitions.
The company has come under pressure to return more cash to shareholders by activists. Given its strong balance sheet and its double A credit rating, Apple is able to issue huge amounts of debt.
But analysts say the company needs to be wary of saturating the US debt market after last year’s bond sale, hence its examination of foreign markets.
An Apple bond issue will likely be greeted with open arms by the investment community
- Jack Ablin, chief investment officer, Harris Private Bank
The combination of Apple’s high credit quality and the likelihood of longer-dated tranches being included in the offer, are likely to appeal to pension funds and insurers, analysts said.
Jack Ablin, chief investment officer at Harris Private Bank, said that the new bonds were likely to offer a higher yield than government bonds.
“An Apple bond issue will likely be greeted with open arms by the investment community,” he said.
Investors who bought Apple’s bonds last year are sitting on substantial price losses as the iPhone maker issued its debt just before long term interest rates rose sharply last summer.
In terms of timing, Apple could not be faulted as it sold debt at very low yields and just before a big sell-off rattled the bond markets as the Federal Reserve indicated it wanted to start tapering its quantitative easing policy.
Investors who bought the long term bonds have seen their value drop sharply. Apple’s 30-year bond is trading at a price of 90.36 (a yield of 4.45 per cent), down from its 101.97 high at the start of last May – a loss of a little more than 10 per cent.
“Apple came at the very top of the market,” said Sabur Moini at Payden & Rygel. “That was great for the company, but not so much for the investors.”
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
via apple - Google News http://ift.tt/1lWr1C4
Posts
0 comments:
Post a Comment