Apple prepping first Australian dollar-denominated bond offering - report

Posted:
in AAPL Investors edited August 2015
Apple will reportedly continue to diversify its corporate debt issuance strategy with a new bond denominated in Australian dollars, the company's latest move to raise debt outside the United States in order to fund its growing capital return program.

Apple


Apple is expected to raise at least A$500 million ($369 million), but the offering could go as high as A$1 billion, one Australian banker told Reuters. If it trends toward the higher end of that range, it would be among the largest bonds ever floated in the Australian market.

There is no word on when the so-called "Kangaroo" offering could take place, but Apple will likely begin calls with investors on Tuesday.

Apple issued its first foreign currency bond last November, raising $3.5 billion with a euro-denominated offering. That was followed by a $1.08 billion Swiss franc bond in February of this year, a $2 billion yen debut in June, and a $2 billion sterling issue in July.

The bonds are primarily used to fund Apple's massive capital return program, which is targeted to hand $200 billion back to shareholders through dividends and buybacks by the end of March 2017. While Apple has more than $220 billion in cash and marketable securities, much of it --?more than $190 billion --?is held in its foreign subsidiaries.

Thanks to U.S. corporate tax policy, which would require Apple to pay another round of taxes on that money if it were to come back to the U.S., issuing debt is significantly less expensive than repatriating Apple's foreign cash.

Comments

  • Reply 1 of 18
    asciiascii Posts: 5,816member

    Maybe they are issuing bonds in currencies they expect the US dollar to rise relative to, so that when they have to give the investors their money back in X years time, it will be fewer US dollars.

  • Reply 2 of 18
    Quote:

    Originally Posted by ascii View Post

     

    Maybe they are issuing bonds in currencies they expect the US dollar to rise relative to, so that when they have to give the investors their money back in X years time, it will be fewer US dollars.




    Hmm, difficult to imagine the US dollar continuing to rise without seriously damaging the US economy. But I guess it just makes sense to hedge the debt across a range of currencies: they won't win, but they also won't lose.

  • Reply 3 of 18
    cnocbuicnocbui Posts: 3,613member

    Not sure I understand why they are doing this.  I can understand issuing bonds in Swiss Francs and Euros as interest rates are almost non existent, but that is not the case in Australia where it's 2% .  I can't see Apple bonds offering even close to that.  I can get 2.5% on money just sitting in a bank account.  Apple's bonds would have to match or exceed that to interest me.

  • Reply 4 of 18
    I get the feeling Apple cares more about managing its massive wealth more than its products now. Such is the price of success.
  • Reply 5 of 18
    s.metcalf wrote: »
    I get the feeling Apple cares more about managing its massive wealth more than its products now. Such is the price of success.

    That's an absurd comment. Profits and managing money are fundamental to all businesses.
  • Reply 6 of 18
    Quote:
    Originally Posted by cnocbui View Post

     

    Not sure I understand why they are doing this.  I can understand issuing bonds in Swiss Francs and Euros as interest rates are almost non existent, but that is not the case in Australia where it's 2% .  I can't see Apple bonds offering even close to that.  I can get 2.5% on money just sitting in a bank account.  Apple's bonds would have to match or exceed that to interest me.


    Interest rates and exchange rates are connected. Generally, countries with depreciating currencies tend to have higher interest rates. So if you're getting a higher interest rate in Australia, it could be because the AUD is depreciating or expected to depreciate further.

     

    No free lunch, as they say.

     

    (Add: The logic for the relationship between interest rates and exchange rates is the following: if you are an investor in a bond in a currency that is expected to depreciate, you would demand a higher interest rate to compensate for the fact that you will be converting future interest payments in the foreign currency into fewer units of the home currency).

  • Reply 7 of 18
    cnocbuicnocbui Posts: 3,613member
    Quote:

    Originally Posted by anantksundaram View Post

     

    Interest rates and exchange rates are connected. Generally, countries with depreciating currencies tend to have higher interest rates. So if you're getting a higher interest rate in Australia, it could be because the AUD is depreciating or expected to depreciate further.

     

    No free lunch, as they say.

     

    (Add: The logic for the relationship between interest rates and exchange rates is the following: if you are an investor in a bond in a currency that is expected to depreciate, you would demand a higher interest rate to compensate for the fact that you will be converting future interest payments in the foreign currency into fewer units of the home currency).


     

    Australian interest rates are historically the lowest they have ever been.  Back in 2011 they were more than double what they are now and back then you could get 6.5% on a term deposit and the Australian dollar was at more than parity with the US$, but I appreciate you were speaking in general terms.

     

    The A$ is pretty low now.  As an investor, you would have to be living in cloud cuckoo land to buy A$ to partake of this purported bond for the miserly interest rates Apple has offered on its other bonds.  It only makes sense to me for Australians to buy into it since there's no currency risk involved, but as I said, why would locals want in unless the rates were attractive, which I think would be unlikely.

  • Reply 8 of 18
    badmonkbadmonk Posts: 712member
    They should make the bank issuing the bond agree to ApplePay.
  • Reply 9 of 18
    Quote:

    Originally Posted by cnocbui View Post

     

    Australian interest rates are historically the lowest they have ever been.  Back in 2011 they were more than double what they are now and back then you could get 6.5% on a term deposit and the Australian dollar was at more than parity with the US$, but I appreciate you were speaking in general terms.

     

    The A$ is pretty low now.  As an investor, you would have to be living in cloud cuckoo land to buy A$ to partake of this purported bond for the miserly interest rates Apple has offered on its other bonds.  It only makes sense to me for Australians to buy into it since there's no currency risk involved, but as I said, why would locals want in unless the rates were attractive, which I think would be unlikely.


    Absolute levels of interest rates mean nothing at all. What matters are rates relative to other countries. If interest rates have fallen everywhere, but those on the AUD have fallen by less, then you could observe -- as you do -- a depreciating AUD even though interest rates (in absolute terms) are lower than they were in 2011.

     

    As to "living in cloud cuckoo land" to want to invest in Apple's bonds, we'll have to see, won't we? I predict that Apple's AUD bond issue will be more than handily snapped up, and it will likely be some pretty sophisticated buyers (e.g., the likes of the pension funds with whom you have your retirement wealth) that'll be doing so. They're far from your "cuckoo land" types (unless those who are invested in them also live in cuckoo land). 

     

    Come back and let us know if Apple's bond issue failed, won't you?

  • Reply 10 of 18
    lkrupplkrupp Posts: 6,293member
    Quote:

    Originally Posted by s.metcalf View Post



    I get the feeling Apple cares more about managing its massive wealth more than its products now. Such is the price of success.



    Yes, yes, we get it. Steve is dead and Apple is doomed. Depressing isn’t it Debbie Downer?

  • Reply 11 of 18
    cnocbuicnocbui Posts: 3,613member
    Quote:

    Originally Posted by anantksundaram View Post

     

    Absolute levels of interest rates mean nothing at all. What matters are rates relative to other countries. If interest rates have fallen everywhere, but those on the AUD have fallen by less, then you could observe -- as you do -- a depreciating AUD even though interest rates (in absolute terms) are lower than they were in 2011.

     

    As to "living in cloud cuckoo land" to want to invest in Apple's bonds, we'll have to see, won't we? I predict that Apple's AUD bond issue will be more than handily snapped up, and it will likely be some pretty sophisticated buyers (e.g., the likes of the pension funds with whom you have your retirement wealth) that'll be doing so. They're far from your "cuckoo land" types (unless those who are invested in them also live in cuckoo land). 

     

    Come back and let us know if Apple's bond issue failed, won't you?




    I did not mean 'cloud cuckoo land' in terms of wanting to invest in Apple bonds, I meant it in the context of doing so by converting another currency to A$, which would be taking a big gamble on exchange rates.  You could potentially lose far more on effective principal depreciation than you ever got in interest.  As I have said a couple times, I only see such a bond being attractive to those who already possess A$ and only if the rate offered is attractive, given the interest rates you can get in Australia just from a bank account.  The Swiss Franc Bond had a yield of 0.5% I think.  If they offered rates like that on the Australian bond and my hypothetical pension fund took a stake I would not be impressed.

     

    Apple's Euro bond offered a miserable 1.7% over 12 years.  I personally don't see the attraction.

     

    Australia has quite an interesting superannuation environment with many people managing their own funds due to the unconscionable level of fees and charges many managed funds levy. 

  • Reply 12 of 18
    So...if Apple sells bonds in Australia, can they repatriate the cash (to America), tax free, to fund the buyback? Or, maybe Apple is expatriating bonds to Australia so the cash doesn't have to be brought back because it's already here. Am I getting this right?
  • Reply 13 of 18
    cnocbui wrote: »


    I did not mean 'cloud cuckoo land' in terms of wanting to invest in Apple bonds, I meant it in the context of doing so by converting another currency to A$, which would be taking a big gamble on exchange rates.  You could potentially lose far more on effective principal depreciation than you ever got in interest.  As I have said a couple times, I only see such a bond being attractive to those who already possess A$ and only if the rate offered is attractive, given the interest rates you can get in Australia just from a bank account.  The Swiss Franc Bond had a yield of 0.5% I think.  If they offered rates like that on the Australian bond and my hypothetical pension fund took a stake I would not be impressed.

    Apple's Euro bond offered a miserable 1.7% over 12 years.  I personally don't see the attraction.

    Australia has quite an interesting superannuation environment with many people managing their own funds due to the unconscionable level of fees and charges many managed funds levy. 

    I agree that non-financial companies have no business sepaculating on the direction of exchange rates -- it's a fool's errand. I doubt very much that Apple is. I am convinced that a lot of their foreign currency borrowings are equally driven by their wanting to fund local operations in local currencies -- in other words, they're doing a 'balance sheet hedge' (some people also call this a natural hedge). It is also possible (and this might sound technical, but it's not; a lot of large global businesses do this all the time) that Apple is issuing the foreign currency bond, but doing a 'currency swap' with a counterparty to get back into dollars.
  • Reply 14 of 18
    So...if Apple sells bonds in Australia, can they repatriate the cash (to America), tax free, to fund the buyback? Or, maybe Apple is expatriating bonds to Australia so the cash doesn't have to be brought back because it's already here. Am I getting this right?

    Yes, they can use the proceeds -- converted into US dollars -- to buy back shares (all of Apple shares are listed solely in the U.S.). But if it is used for buybacks (or dividends) the IRS requires that the AUD coupon and principal on the AHD bond have to paid back with cash flow generated in the U.S., so Apple incurs exchange rate risk (as a poster has pointed out above). I doubt they'd want that.

    That's why I am guessing that some of its is 'swapped' back into US dollars, and the rest used to finance local operations in Australia.

    It's all a guess, of course.
  • Reply 15 of 18
    crowleycrowley Posts: 5,524member
    Quote:

    Originally Posted by NostraThomas View Post



    So...if Apple sells bonds in Australia, can they repatriate the cash (to America), tax free, to fund the buyback? Or, maybe Apple is expatriating bonds to Australia so the cash doesn't have to be brought back because it's already here. Am I getting this right?

     

    Apple US is selling bonds to fund the stock buyback.  The debt is in the USA, and they cannot pay it back using money held overseas.  This is a way of unlocking access to equity in the US in the form of debt without repatriating foreign profit, because repatriating that would incur corporation tax on Apple US.  Sneaky, or smart, you can lean either way.

  • Reply 16 of 18
    plothploth Posts: 6member
    s.metcalf wrote: »
    I get the feeling Apple cares more about managing its massive wealth more than its products now. Such is the price of success.

    Unfortunately I agree. I have had nothing but issues with Apple the last 6 months and they are unwilling / unable to help.

    iCloud issues possibly the worst, but issues with thunderbolt peripherals (including 30" cinema displays ) and unhelpful 'support'. Finally sold my iPad 4 due to other issues expecting to upgrade to Air2, now I'm not so sure. Iphone is dying (but that is old it's a 5) but the syncing issues are just unacceptable.

    Some of the bugs in Yosemite are just inexcusable...I have to RESTART regularly now. Still not as bad as Wimdows I switched away from (xp) but it's comparable now and they talking of the next version?

    But yes what a stupid thing to do on an Apple forum- state actual experience!!
    Yes all bugs reported, yes DOZENS of calls to support lasting hours including engineer involvement and multiple trips to the Apple store- no help I'm left chasing them.

    The exact opposite of what amazed me about Apple for so long.
  • Reply 17 of 18
    hmmhmm Posts: 3,405member
    Quote:

    Originally Posted by NostraThomas View Post



    So...if Apple sells bonds in Australia, can they repatriate the cash (to America), tax free, to fund the buyback? Or, maybe Apple is expatriating bonds to Australia so the cash doesn't have to be brought back because it's already here. Am I getting this right?

    If they could do that, they wouldn't have issued a bond in the first place.

  • Reply 18 of 18
    MacProMacPro Posts: 17,515member
    Hopefully Apple won't get upside down in this deal. /;)
Sign In or Register to comment.