Tags: apple | euro | bond | offering

Apple Said to Plan First Euro Bond Offering

Tuesday, 04 November 2014 07:57 AM

Apple Inc. is gearing up for its first bond offering in euros as the iPhone maker seeks to fund another round of shareholder rewards without using overseas cash that would be subject to U.S. repatriation taxes.

The world’s most valuable technology company has hired Goldman Sachs Group Inc. and Deutsche Bank AG to manage the sale and the money would be used for share buybacks and dividends, said a person with direct knowledge of the matter. Banks have started gauging investor interest in the offering, according to investors at two firms who have been approached.

By borrowing in euros, Cupertino, California-based Apple can take advantage of a market that’s offering the lowest yields in six years relative to dollar-denominated debt. Apple, which has the biggest corporate cash hoard at $155 billion, has raised $29 billion from bond sales since 2013 to give back cash to its owners instead of repatriating its overseas reserve.

“All-in funding levels in euros are so low for corporates at the moment it makes sense to issue here,” said Jens Vanbrabant, the lead money manager at London-based ECM Asset Management Ltd., which oversees $8 billion. “It’s much lower than dollars. There is no doubt investors will like the name.”

Stock Buybacks

A London-based spokesman for Apple declined to comment on whether the securities would be denominated in euros.

Apple, which holds more than 88 percent of its cash overseas, according to data compiled by Bloomberg, has been pushed by activist investor Carl Icahn to accelerate its stock repurchase program.

The company sold $12 billion of bonds in April after issuing $17 billion in 2013 in the largest corporate bond sale at the time, data compiled by Bloomberg show.

Its $2.5 billion of 3.45 percent notes sold this year have gained 2.9 percent, index data compiled by Bloomberg show. The securities coming due in May 2024 traded at 102.9 cents on the dollar to yield 3.1 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The average yield that investors demand to hold investment- grade corporate bonds in euros fell to 1.22 percent, or 0.02 percentage point from a record low, according to Bank of America Merrill Lynch index data. That’s widened the yield gap with dollar notes to 1.87 percentage points, which is close to the biggest discount since October 2008, the data show.

Cash Holdings

The company is forecasting a record holiday sales quarter after introducing new bigger-screen iPhones and slimmer iPads.

Apple’s cash accounted for 10 percent of the $1.65 trillion held by U.S. non-financial companies through the first half of the year, according to an Oct. 20 report by Moody’s Investors Service.

Under current law, U.S. companies can defer federal income taxes on most overseas earnings indefinitely. When they do bring back the money to the U.S., they’re taxed at the corporate rate of 35 percent, with credits for foreign income taxes paid. Companies paying little in overseas levies face higher U.S. tax bills upon repatriation and can save money by borrowing instead.

Billionaire Icahn wrote an open letter last month to Apple Chief Executive Officer Tim Cook to increase share repurchases and boost the value of the stock, which he said was trading at half its value.

‘Great Rates’

“They’ve got so much cash, and generate so much cash, that they can incrementally increase shareholding funding activity and they will still be fine,” Lon Erickson, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management Inc., said in a telephone interview.

The company, which had authorized a $90 billion share buyback program, has repurchased $67.9 billion of shares as of Sept. 27, according to a regulatory filing last week. Apple also increased its quarterly dividend to 47 cents earlier this year, resulting in a capital returns program that has increased to $130 billion, according to the filing.

“They will probably be able to lock in great rates but investors need to be wary that they could reach a point when credit spreads start to leak wider, especially if interest rates start to rise,” Erickson said.

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Apple Inc. is gearing up for its first bond offering in euros as the iPhone maker seeks to fund another round of shareholder rewards without using overseas cash that would be subject to U.S. repatriation taxes.The world's most valuable technology company has hired Goldman...
apple, euro, bond, offering
Tuesday, 04 November 2014 07:57 AM
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