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Apr 12, 2001
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Apple-Bonds-250x276.jpg
Confirming rumors reported last week, Apple on Monday issued a U.S. dollar bond in Taiwan that is estimated to raise between $1 billion and $1.2 billion (via Reuters).

The yield on the 30-year bond compares with a range between 4.2 percent and 4.3 percent ahead of its pricing, according to people familiar with the matter.

That yield comes in significantly lower than recent bonds by blue-chip multinationals such as Intel and Anheuser Busch InBev, but it is only the first issue of debt by Apple on the island, which is home to a number of the company's partners in the supply chain.

The total amount raised by the bond, which is callable after the second year, has yet to be finalized, said sources who spoke to Reuters and could not be named.

Cathay Financial Holding, the parent company of Taiwan's biggest life insurer, has reportedly bought a "small part" of the bond, since the yield is lower than others issued by Apple outside of Taiwan.

Apple has a large offshore cash pile and the company clearly sees debt markets as a viable way of financing its capital return program, which was recently increased to $250 billion following a $50 billion expansion in April. Apple is also said to be issuing bonds in Australia, and possibly Japan and Singapore, as part of broader plans to raise up to $4 billion in debt in the Asia-Pacific region.

Article Link: Apple Issues 30-Year Bond in Taiwan at 4.15 Percent Yield
 

PinkyMacGodess

macrumors 604
Mar 7, 2007
7,342
3,741
Midwest America.
But which board game? Risk? Power Grid? Game of Thrones? :D

Does it matter? :eek:o_O

Corporations are 'too big to fail', and yet are parasites that can kill their host countries. There has to be a reason Apple would want so much money, and why they would want to pay it back.

They aren't doing it for any altruistic agenda, you can bet on it. I just asked an MBA, and they just smiled and said 'It's a shell game'. Hmm... :apple:

Is this a way to 'repatriate' all of that cash? Are they using these bonds to 'launder' money?

I'm sure it's all 'Perfectly Legal(tm)'
 

weave

macrumors regular
Jan 4, 2003
143
67
Whoosh. (Admittedly, that's the sound of this article flying right over my head.) Darn corporate financial stuff.

You're not the only one...

ELI5 please....

(explain it like I'm five -- to borrow from another site)

I'm confused. Does this mean Apple is borrowing money? Why would they borrow money when they are sitting on billions of cash already?
 

PinkyMacGodess

macrumors 604
Mar 7, 2007
7,342
3,741
Midwest America.
You're not the only one...

ELI5 please....

(explain it like I'm five -- to borrow from another site)

I'm confused. Does this mean Apple is borrowing money? Why would they borrow money when they are sitting on billions of cash already?

Yes they are 'raising money', but why?

My accountant told me that 'debt is a good thing' when I ran my business. I routinely kept a few thousand in assorted debt, and paid off everything on time. Maybe Apple needs better credit?:confused:o_O
 

Abazigal

Contributor
Jul 18, 2011
15,254
14,573
Singapore
You're not the only one...

ELI5 please....

(explain it like I'm five -- to borrow from another site)

I'm confused. Does this mean Apple is borrowing money? Why would they borrow money when they are sitting on billions of cash already?
Because it's cheaper to borrow them to repatriate all that money back to the US, where Apple would then have to pay a hefty tax.

So while Apple is very rich on paper, in reality, there is a limit to how much of that money they can actually use without ramifications.
 

Sheza

macrumors 68020
Aug 14, 2010
2,044
1,747
You're not the only one...

ELI5 please....

(explain it like I'm five -- to borrow from another site)

I'm confused. Does this mean Apple is borrowing money? Why would they borrow money when they are sitting on billions of cash already?
Capital structure / mix

Any business should seek to have a good balance between equity (shares) and debt (bonds and loan) finance. This is for many reasons, some which are too complicated for people like you and me to understand.

One thing worth noting - equity finance i.e. the issuance of shares, gives away things like voting rights on the company's board. This is bad for retention of control of the company. Debt finance, on the other hand, does not. It gives a finite-length obligation (in this case 30 years) and then that's it.

Now, the article seems to suggest that this is being used to finance Apple's capital returns programme, which makes sense. It shrinks a company's equity. It gives Apple more control, and it lets those who hold shares in Apple get some or all of their initial purchase price back.

I don't fully understand it myself, but I know that there is a reason for having a mix of equity and debt finance.

Another answer could be... well, because they can!
 

Asianpork

macrumors member
May 12, 2016
74
208
Makes perfect sense why they're doing it...Refinance a 30 year commodity inverse bond so they can maximize their flux capacitor gains amortized over delta X joules. Gives them ultra excelsior.


...*sigh* I...I don't understand finance very much.
 

RedTomato

macrumors 601
Mar 4, 2005
4,087
378
.. London ..
MBA finance 101: companies "lever-up" to take advantage of a debt tax shield.

http://www.accountingtools.com/questions-and-answers/what-is-a-tax-shield.html
So from that I understand it to be something like this:

Apple has, for example, $10 billion in cash. They pay, for example, 10% tax on that per year. (Numbers are made up)

Apple's tax bill : $1 billion per year.

Apple then borrows $5 billion, by issuing a bond (a request to borrow money with a promise to repay.) The interest on that is, say, 20% per year. Apple has to pay out another $1 billion per year.

You may think the total for Apple to pay out is now $2 billion per year. Not so.

Most governments say if a company borrows money to pay for something, then the interest payments are a cost of running the company. So then governments (mostly) chose to allow companies to deduct (some of) that cost of running the company from (some) of the taxes they must pay the government.

Apple now deducts that $1billion in interest payment from the $1billion in taxes they owe.

Result: Apple has gone from $10 billion in cash to $15 billion in cash, and still only pays $1billion per year. ($0 in taxes, and $1 billion in interest payments).

Why is this allowed?

The benefit to government in allowing this kind of deal is that, in theory, the $5 billion raised is spent with other companies, increasing their profits and creating more jobs. The government then gets their $1billion back in taxes on the other companies' profits, plus economic stimulus, plus reduced unemployment, plus increased sales taxes, plus more revenue from the personal taxes that employed people pay. Etc.

That's the best ELI5 I can do. Am I on the right track here?
 
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lederermc

macrumors 6502a
Sep 30, 2014
859
722
Seattle
Why doesn't Apple just issue Euro dividends from their shell corporation in Ireland and let the share holders deal with the IRS.
 

Fall Under Cerulean Kites

macrumors 6502
May 12, 2016
272
851
Apple now deducts that $1billion in interest payment from the $1billion in taxes they owe.
...
That's the best ELI5 I can do. Am I on the right track here?

One problem there. You’re confusing a tax deduction with a tax credit. $1B in additional expenses only reduces their net profit by $1B. It does not reduce tax liability by $1B.

At a 10% effective tax rate, it would take $10B in additional expenses to reduce the tax burden by $1B.

That said, I have no clue why they want to issue debt either.
 

JustaTecho

macrumors newbie
Sep 4, 2014
28
31
don't glorify tax dodgers.

Are you (or me) a tax dodger for taking advantage loop holes?
I am assuming you must not take write off's when you file your taxes?
ie You don't accept the tax benefits from owning a home or having children?
 

RC Mike

macrumors member
Aug 6, 2015
67
75
I'm just an attorney who has forgotten a lot about corporate tax law, but...

Notice that the money raised is in USD? Apple can likely bring that money back into the US with minimal tax impact. Apple's problem is that they can't bring capital back into the US without significant taxation. So... issue debt overseas in USD. Bring the raised capital back to the US. Pay the debt with capital that's overseas that you can't easily bring home.

That the debt is callable in two years supports this idea.
 
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teknikal90

macrumors 68040
Jan 28, 2008
3,237
1,724
Vancouver, BC
Are you (or me) a tax dodger for taking advantage loop holes?
I am assuming you must not take write off's when you file your taxes?
ie You don't accept the tax benefits from owning a home or having children?

There is a difference between claiming family tax benefits, and structuring foreign companies to take advantage international tax loopholes like the double irish dutch sandwich.
For one, the latter is the reason why the first (the family tax benefits that you and i are claiming) are getting scarcer and scarcer. In other words, even in taxation, the rich are getting richer at the expense of the poor and middle class.

I'm not a socialist. I think rich people worked hard to get to where they are and they should by all means reap the fruits of their labour. But to exploit a system to take advantage of a discrepancy in international taxation laws, laws that the common person would never be able to take advantage of, and in the process breaking a system at the expense of those middle and lower class - like your and my family - is in my view, wrong.
[doublepost=1465328981][/doublepost]
I'm just an attorney who has forgotten a lot about corporate tax law, but...

Notice that the money raised is in USD? Apple can likely bring that money back into the US with minimal tax impact. Apple's problem is that they can't bring capital back into the US without significant taxation. So... issue debt overseas in USD. Bring the raised capital back to the US. Pay the debt with capital that's overseas that you can't easily bring home.

That the debt is callable in two years supports this idea.
debt issue are more often than not done in USD
 

teknikal90

macrumors 68040
Jan 28, 2008
3,237
1,724
Vancouver, BC
Candyland.
[doublepost=1465334199][/doublepost]Think again.
ugh. why do people like you feel the need to drop easy, cheap, non-elaborate pseudo responses in a solid discussion, just for the appearance of sounding somewhat profound and dramatic, I guess. in actuality you added no value to the discussion, other than to yourself, to relieve your fingers from mid-day boredom.
 

Larry-K

macrumors 68000
Jun 28, 2011
1,852
2,316
ugh. why do people like you feel the need to drop easy, cheap, non-elaborate pseudo responses in a solid discussion, just for the appearance of sounding somewhat profound and dramatic, I guess. in actuality you added no value to the discussion, other than to yourself, to relieve your fingers from mid-day boredom.
Oh, you mean hackneyed cliches like:
don't glorify tax dodgers.
 
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