Why Should Apple Inc. (NASDAQ:AAPL) Tap Debt Market Despite Its Cash Pile?

Why Should Apple Inc. (NASDAQ:AAPL) Tap Debt Market Despite Its Cash Pile?


Apple Inc. (NASDAQ:AAPL) is taping the debt market for the second time in the current month itself. This is despite the company having a cash pile of more than $250 billion. The latest is that the tech bellwether would issue a dual-tranche euro-denominated bond. The company is yet to disclose the pricing and the size of the issue.

Apple has already received orders for more than Euros 5 billion worth of bonds, CNBC reported. It is clear that the company is taking advantage of the European market conditions where there is a strong appetite for corporate bonds from leading brands. That is primarily because the European Central Bank has been busy in buying corporate bonds as part of quantitative easing.

The iPhone maker could stand to gain from the low-interest regime in the European market, as well as, the American market. While there is no hope of any hike in interest rates in the Euro zone, analysts and economists started expecting 25 basis points interest rate hike next month in the United States.

Apple’s move could also be seen in the wake of the stock markets witnessing a sharp drop in the United States on Wednesday. The weak sentiments on share market meant a shift towards the bond market. While investors would be looking for a better yield when the market is sluggish, corporate could gain from lower yields since they would be lower interest for the bonds.

However, the tech bellwether indicated in its filing with the SEC that the company plans to use net proceeds from the debt issue for general corporate purposes. This included buying back of its shares and dividend payment under its plan to return capital to its shareholders. Aside from that, the company listed capital expenditures, repayment of debt, funding of working capital and acquisitions.

On May 11, Apple closed a sale of $7 billion worth of debt through different tranches in the United States. While $1.5 billion is set to mature in 2020, another $1.75 billion will mature in 2022. Similarly, $1.75 billion notes will mature in 2024 whereas another $2 billion will mature in 2027. As a result of the latest debt offering, the iPhone maker’s total debt crossed $100 billion mark. At the end of March quarter, its debt was $98.88 billion.

On Wednesday, Apple shares dropped 3.36 percent in regular trading hours but recovered 0.47 percent in after-hours trading.