Apple Said to Seek First Bond Offering in Euros
Apple Inc. (AAPL) is gearing up for its first bond offering in euros as the iPhone maker seeks to fund another round of shareholder rewards without tapping overseas cash that would be subject to repatriation taxes.
Banks hired by the world’s most valuable technology company have started gauging investor interest in an offering that would include securities denominated in euros, according to investors at two firms approached by underwriters. Goldman Sachs Group Inc. and Deutsche Bank AG (DBK) were hired to manage the sale, the proceeds from which would be used to fund Apple’s shareholder-reward program, according to a person with direct knowledge of the matter.
The company with more than $155 billion in cash and equivalents has raised $29 billion from bond sales since 2013 to fund share buybacks and dividends, allowing it to avoid the taxes involved with bringing back its overseas cash. By borrowing in euros, the Cupertino, California-based company would tap into a market that’s offering the lowest rate relative to dollar-denominated debt in six years, according to Bank of America Merrill Lynch index data.
The company with more than $155 billion in cash and equivalents has raised $29 billion from bond sales since 2013 to fund share buybacks and dividends, allowing it to avoid the taxes involved with bringing back its overseas cash. By borrowing in euros, the Cupertino, California-based company would tap into a market that’s offering the lowest rate relative to dollar-denominated debt in six years, according to Bank of America Merrill Lynch index data.
“All-in funding levels in euros are so low for corporates at the moment it makes sense to issue here,” said Jens Vanbrabant, lead money manager at London-based investment firm ECM Asset Management Ltd., which oversees $8 billion. “It’s much lower than dollars. There is no doubt investors will like the name.”
Overseas Cash
Apple has been pushed by activist investor Carl Icahn to accelerate its stock buyback program even as the company holds more than 88 percent of its cash overseas, according to data compiled by Bloomberg.
A London-based spokesman for Apple declined to comment on whether the securities would be denominated in euros.
Apple raised $12 billion in bonds in April after issuing $17 billion in 2013 in the largest corporate bond sale at the time, according to data compiled by Bloomberg.
The average yield investors demand to hold investment-grade corporate bonds in euros fell to 1.22 percent, two basis points 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, two basis points from the biggest discount since October 2008, the data show.
The company, which ended the fiscal fourth quarter with $155.2 billion in cash, is forecasting a record holiday sales quarter after introducing new bigger-screen iPhones and slimmer iPads.
Tax Bills
Under current law, U.S. companies can defer federal income taxes on most overseas earnings indefinitely. When they do return 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 may save money by borrowing instead.
Billionaire investor Icahn wrote an open letter to Apple Chief Executive Officer Tim Cook to increase share repurchases to boost the value of the stock, which he says is languishing at half its value.
Apple’s total cash holdings made up 10 percent of the entire $1.65 trillion cash pile of the U.S. non-financial companies ranked by Moody’s Investors Service through the first half of the year, according to an Oct. 20 report by the credit ratings firm.
