Apple to raise $6.5bn in bonds

Apple is selling bonds to raise $6.5bn despite recording its most profitable quarter ever and cash reserves of $178bn

Apple has revealed it is selling bonds to raise $6.5bn despite recording its most profitable quarter ever and cash reserves of $178bn.

With so much money on its balance sheet, Apple is considered an ultra-safe investment and has typically paid investors extremely low interest rates on its debt, said The Guardian.

News of the bond sale comes less than a week after the company posted fourth-quarter revenue of $74.6bn and a net profit of $18bn, driven by record iPhone, Mac and App Store sales.

Apple has previously sold bonds to fund share buybacks and appease investors, borrowing $17bn in 2013 and selling $3.17bn in bonds on the European markets in November 2014, reported The Telegraph.

The company has been under pressure from billionaire activist investor Carl Icahn since October 2014 to accelerate buying back company stock to boost the stock price.

Apple had planned to raise $5bn in its latest sale of bonds, but increased this by 30% to $6.5bn, reported Bloomberg, citing an anonymous source.

Analysts said by issuing bonds, Apple is able to make stock repurchases, pay dividends, fund debt repayments and cover capital and running expenses without using overseas cash reserves, thereby avoiding US repatriation tax.

Apple would have to pay up to 35% tax on any funds it brought into the US, which would result in a multi-billion dollar tax bill.

Analysts said low US interest rates also mean corporate debt costs less than under usual economic conditions.

They said the timing of the latest bond sale makes sense because it capitalises on the iPhone maker’s strong momentum of the past few weeks.

Apple’s bonds have returned 13.6% since the start of 2014, outperforming the 10.3% gain in debt of similarly rated companies, according to Bank of America Merrill Lynch Indexes.

With corporate taxes so high, and interest rates low, it is much cheaper for Apple to raise debt and pay it back with interest than to repatriate cash.

Unless there is corporate tax reform in the US as some politicians are calling for, Apple will probably keep raising money this way for the foreseeable future, according to Business Insider.


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