 "Cash-rich Apple borrows money to satisfy investors")
With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard and Yahoo. Put another way, it could buy every office building and retail space in New York, according to city estimates.
But despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the US Treasury.
Its return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?
The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing. Apple's manoeuvre, however, also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from a high last fall of more than $700 to under $400 last month.
In an effort to assuage a growing chorus of frustrated investors, the company is issuing bonds to help finance a $100-billion payout to shareholders. Apple said last week that it planned to distribute that amount by the end of 2015 in the form of paying increased dividends and buying back its stock.
Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value.
But despite its extraordinarily flush balance sheet, the technology behemoth borrowed money on Tuesday for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the US Treasury.
Its return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?
The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing. Apple's manoeuvre, however, also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from a high last fall of more than $700 to under $400 last month.
In an effort to assuage a growing chorus of frustrated investors, the company is issuing bonds to help finance a $100-billion payout to shareholders. Apple said last week that it planned to distribute that amount by the end of 2015 in the form of paying increased dividends and buying back its stock.
Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value.
©2013 The New York Times News Service