Apple Looking to Raise $3.5 Billion From Bond Sale Involving Euros [Updated]

[sirike]

Can they pay off this debt with offshore funds?

I'm curious if they will be able to pay off this debt with funds that are locked into international accounts because apple doesn't want to pay US taxes on them: http://www.nytimes.com/2013/05/21/b...ressional-panel-says.html?pagewanted=all&_r=0

Anyone know if this is possible? It's interesting because the funds they are raising can be used for just about anything... even in the US.

 

[springsup]

It is amazing they command such a low interest rate for corporate bonds. This is a great deal for the company and shareholders. Using the proceeds for share buybacks and dividend payments is very smart. On the other side of the deal, as a corporate bond investor they will be on the lowest risk, lowest return side of the spectrum and will make a great anchor for a bond portfolio.

Yup, this is extremely cheap for Apple. Great deal for shareholders.

 

[dialectician]

please explain

Can someone who knows more about finance explain to me why it makes sense for a company that has tens of billions in cash to issue bonds? Is the cash that Apple has on hands currently invested in ventures that have higher returns than the cost of these bonds?

 

[bawbac]

Apple would make a great country to live in atleast the most fiscally stable country in the world.

As long as you are fine with dictatorship & communism, you would fit right in to Apple country. If you want freedom and choice, you will have the leave Apple country.

 

[IJ Reilly]

Can someone who knows more about finance explain to me why it makes sense for a company that has tens of billions in cash to issue bonds? Is the cash that Apple has on hands currently invested in ventures that have higher returns than the cost of these bonds?

The tens of billions isn't invested in high return ventures, and a great deal of the cash is offshore. Bond sales allow the company to borrow at very little cost against cash flows in order to finance dividends and stock buybacks.

 

[captain cadet]

Obviously you were just trying to be clever and don't know much about finance.

If you assume the Euro might be worthless soon, then taking debt in Euro is not a risk. As the Euro falls, your debt (measured in USD) decreases.

The risk, however, is that the Euro is somewhat low at the moment. If it gains (the USD falls), the debt will increase.

Generally speaking, EUR/USD is somewhat stable, though. It has been circling 1.30 EUR/USD for a decade.

But with the EU not completely out of the dark times and it has slipped down in the last few weeks So its likely that Apple wont get their money back up to peak for at least another 5 years

 

[TallManNY]

Can someone who knows more about finance explain to me why it makes sense for a company that has tens of billions in cash to issue bonds? Is the cash that Apple has on hands currently invested in ventures that have higher returns than the cost of these bonds?

Don't just look at the returns for the cash on their balance sheet this year, these bonds are 8 and 12 year debt. So they've locked in 1% and 1.6% interest over a long period of time. There should, in that time period, even be some period of significant inflation in the Euro that will make the real interest rate even cheaper. Not to mention that the interest is a tax deduction as well.

 

[2457282]

Everyone knows that Apple has close to $200 billion in cash. Cook has also claimed that about 75% of the cash is sitting outside the US. I would therefore imagine that some of that is in Europe. Given this, why does Apple need a loan for additional cash?

It not that they need a tax break right now....

Can someone edu-ma-cate me?

Thanks

 

[Lictor]

So I'm guessing that you don't have any money that is saved in a Money Market account, a savings account, or a checking account that pays interest?

The problem is that we have saving accounts in Europe that gain about as much, that are indexed to inflation and were any gain is tax free. For instance, my saving account is currently at 1% (because we have very low inflation at the moment, it's reevaluated each year to be at 0,25% above inflation), I can't lose money on it and the pocket money I get on it is not added to my revenus (so completely tax free). Of course, money is available at any moment through money transfer.
The only limit is how much I can put on it. But until it's maxed out, i don't really see the point in buying Apple bonds that earns only 1.1% (of which 30% will go to revenue tax) and that require that I wait 8 years to get my money back...

 

[TallManNY]

The problem is that we have saving accounts in Europe that gain about as much, that are indexed to inflation and were any gain is tax free. For instance, my saving account is currently at 1% (because we have very low inflation at the moment, it's reevaluated each year to be at 0,25% above inflation), I can't lose money on it and the pocket money I get on it is not added to my revenus (so completely tax free). Of course, money is available at any moment through money transfer.
The only limit is how much I can put on it. But until it's maxed out, i don't really see the point in buying Apple bonds that earns only 1.1% (of which 30% will go to revenue tax) and that require that I wait 8 years to get my money back...

Yeah, this Bond isn't for you. The only entities that would buy bonds like this are entities with millions to invest and who struggle to find places to put it. Getting 1% is terrible and locking that in for 8 to 12 years is even worse.

But there are entities that have to invest millions and they have to do that every week. Other Euro bonds are also paying 1.5%, so they don't have anywhere better to put it.

If all this strikes you as odd and somehow wrong, well you are probably right. This is part of the continued concentration of wealth into fewer and fewer hands. And it is creating strange results, like where there are billions (even trillions) in the system with no where to go but no money to invest in fixing crumbling bridges and roads. But that is an issue for your government and society as a whole. Not for Apple.

 

[bushido]

Not sure what any of this means lol but I am curious to see what Apple is gonna do once they get fined for their tax fraud in Ireland by the EU

 

[JAT]

Not sure what any of this means lol but I am curious to see what Apple is gonna do once they get fined for their tax fraud in Ireland by the EU

That's easy, really. Most of that huge cash-in-bank figure we always talk about is available to any such tax/penalty in EU. Once they exhaust any deals they can make, they'll pay the amount. It'll probably go over multiple years, though.

 

[nebo1ss]

Can someone who knows more about finance explain to me why it makes sense for a company that has tens of billions in cash to issue bonds? Is the cash that Apple has on hands currently invested in ventures that have higher returns than the cost of these bonds?

Taxes.

 

[CFreymarc]

Euro? Bit risky with a currency that almost bankrupted itself?

Same here. I'd like to see the fine print of this deal to see what liquidity options there are in case of a devaluation. Seen option such as automatic triggering to another currently and even moving to gold.

 

[GfPQqmcRKUvP]

*snicker*

You mean that currency that was designed to be 1:1 to the US$, but dropped to $0.8 after its introduction and then climbed to be over $1.50. And then in the American induced crisis went down to fluctuate mostly between $1.30 and $1.40? That currency?

You probably shouldn't be snickering. Yes it's true that since the euro's introduction the dollar has weakened against it but that's not all you need to look at. This "America-induced crisis" exposed some serious flaws in the currency union (periphery countries mostly) and Europe's recovery has been extremely lackluster compared to the US's. A cursory glance at macro-indicators would tell you that.

Same here. I'd like to see the fine print of this deal to see what liquidity options there are in case of a devaluation. Seen option such as automatic triggering to another currently and even moving to gold.

There doesn't need to be any fine print or "triggering" for Apple to execute whatever currency hedge they want. Apple would never shift into gold - that's ridiculous.

 

[aaronvan]

Euro? Bit risky with a currency that almost bankrupted itself?

Fear not. The Euro is backed by the full faith and credit of Greece.

 

[lk400]

Obviously you were just trying to be clever and don't know much about finance.

If you assume the Euro might be worthless soon, then taking debt in Euro is not a risk. As the Euro falls, your debt (measured in USD) decreases.

The risk, however, is that the Euro is somewhat low at the moment. If it gains (the USD falls), the debt will increase.

Generally speaking, EUR/USD is somewhat stable, though. It has been circling 1.30 EUR/USD for a decade.

Why would EUR/USD matter so much? Unless Apple is getting into FX speculation, the sensible assumption would be that they are issuing bonds in EUR for a reason (eg funds will be deployed in EUR country). Do we know which entity is the issuer - if not the US parent, the entity may even report in EUR.

 

[ProfessorHenry]

I'd wager that it's a tax dodge. So Apple won't pay for any schools & hospitals.

I thought it's local taxes that pay for schools and hospitals?

 

[groovyd]

As long as you are fine with dictatorship & communism, you would fit right in to Apple country. If you want freedom and choice, you will have the leave Apple country.

im fine with it as long as the food is good and the roads are paved and everything else is taken care of for me.

 

[MacBH928]

Why does a company that has tens of billions of dollars ask for a loan in the form of bonds?

 

[s2mikey]

Apple would make a great country to live in atleast the most fiscally stable country in the world.

They sure would and it would be completely tax free too since apple pays like NO taxes whatsoever. Freeging awesome! If they start a colony, I want to go.

 

[Supermule]

what is the benefit of buying these bonds for such a long time when in 12 years the inflation will depreciate it? ie. if i buy 1000EUR today and will get 1000EUR in 12 years then the value i can buy wit it will probably be something like 800EUR.
Or is the interest on those so high that I will actually profit from it?
Can someone with more knowledge give me little bit of a clarification so I can learn, please?
Thank you

Hi Freida,

The thing is, you have to look at "the inflation thing" and "the interests rate thing" (the investment) as two separate things.

Yes, as time goes by, inflation will shrink the purchasing power (real value) of your money...so if you have money in the currency were the inflation is happening, you will get hit by that shrink in purchasing power - no matter what.

But! If you have spare money, you can at the same time ("as time goes by") invest that money in something and get a return (an interest rate). Normally you would like to see, that you get a higher return on your investment than what the inflation takes from your investment deposit by shrinking the purchasing power of your money.
But, when rates are low, and/or investments are with very low risk, then the return on the investment can be lower than the inflation. That sucks...but!

It can still be a good idea to make the investment, since if you dont, your money will (by lying under your pillow) loose value equel to the inflation. By investing you can offset some of that value loss, and its better to earn a small rent than not to earn anything at all.

Sum: the two things are two separate things.

Does it make sense?

(Sorry if my english is not perfect. Its not my first language)

 

[Freida]

Hi Freida,

The thing is, you have to look at "the inflation thing" and "the interests rate thing" (the investment) as two separate things.

Yes, as time goes by, inflation will shrink the purchasing power (real value) of your money...so if you have money in the currency were the inflation is happening, you will get hit by that shrink in purchasing power - no matter what.

But! If you have spare money, you can at the same time ("as time goes by") invest that money in something and get a return (an interest rate). Normally you would like to see, that you get a higher return on your investment than what the inflation takes from your investment deposit by shrinking the purchasing power of your money.
But, when rates are low, and/or investments are with very low risk, then the return on the investment can be lower than the inflation. That sucks...but!

It can still be a good idea to make the investment, since if you dont, your money will (by lying under your pillow) loose value equel to the inflation. By investing you can offset some of that value loss, and its better to earn a small rent than not to earn anything at all.

Sum: the two things are two separate things.

Does it make sense?

(Sorry if my english is not perfect. Its not my first language)

Yes it does, thank you.

I guess it can be "safe bet" for those that don't like the risk of other investments

 

[Rocketman]

The $3.5B issue in euros in Europe is being offered by a US arm of Apple so the money will not need to be repatriated. It is a dirt cheap (0.16-0.55% CP) way to mortgage the Spaceship to avoid local debt (3-4% LTF).