Apple Inc. (AAPL, Financial) continues to show a strong performance at the stock market. Things seem to be going perfectly for the iPhone maker. The latest tech toy off the giant’s lab has been quite a hit. This has bolstered the company’s shares at a record high, valuing the company at $155 billion.
To further its riches, the company has decided to go for bond sale with components denominated in euros. On Tuesday, Apple priced its first non-dollar bonds at record levels: An eight-year bond with a 1.082 percent yield and a 12-year with a yield of 1.671 percent. While a euro bond might look like an unusual move, there are several good reasons for Apple to move now. First, the company can't actually use much of its cash without triggering tax obligations. While Apple had $155 billion in cash on its balance sheet at the end of September, $137 billion of that is held by foreign subsidiaries. The company has said that it would probably need to pay repatriation taxes on most of that money if it tries to bring it back to the U.S.
The experts think the company may soon be in need of some serious dough. The company has already spent a whopping $94 billion on dividends and share repurchases out of a $130 billion program. The remaining $36 billion is expected to be recovered through dividend repurchase and share buybacks until the end of next year. The company officials are of the view that euro-denominated bonds may make more financial sense than selling more bonds in U.S. dollars for reasons best known to them. Last year, the company sold its first bonds in almost 20 years with a $17 billion offering—setting a record at the time for a corporate bond deal. It followed up on that with a $12 billion bond offering in April of this year.
The company is expected to pay between a 1.5 percent and 2 percent coupon on a euro deal, depending on its size, estimates Brian Reynolds, chief market strategist at Rosenblatt Securities. Apple isn't the first to notice the attraction of Europe. U.S. investment grade corporate issuers have sold $31 billion in euro-denominated bonds so far this year. By comparison, U.S. investment-grade issuers have sold $341 billion in dollar-denominated bonds so far in 2014.
Apple is also preparing for a debt sale as global corporations take advantage of a drop in borrowing costs to raise the last batch of funds this year. To go ahead with the plan, the company has hired Deutsche Bank and Goldman Sachs to organize the deal and help the company issue bonds in return for debts and securities. The eight-year bond notes will return 1.1 percent to investors and the 12-year notes will return 1.7 percent. Apple has been working on issuing bonds in other currencies, and this is the first time the company is putting that plan into action. Money raised from the new bonds will go towards share buybacks, dividend payments, and general corporate use. The bonds will be a smart financial move for Apple because current interest rates in the area have been sitting just above zero to help boost the economy.
The debt sale would again be targeted at Europe, where interest rates are lower than in the US, to diversify Apple’s debt investor base. The combination of Apple’s high credit quality and the likelihood of longer-dated tranches being included in the offer would be appealing to pension funds and insurers. Ten-year Treasury note yields, which move inversely to prices, stood at 2.3 percent on Monday, down from a high of 2.66 percent in May.
