By Spencer Mann,
Money and Investing Writer
In historically unusual timing, Apple (NASDAQ: APPL) has made a significant change to its balance sheet. The technology giant has raised $5 billion of debt through bonds of two to thirty years of maturity length. Being one of the highest dividend paying corporations in the United States, Apple has leveraged its future for greater cash flow abilities in the coming months.
While many believe that this round of fundraising is related to the company’s goal to pay out $300 billion to shareholders by March 2019, Apple has not confirmed the exact plan for the use of funds. This decision, however, is not unique. Apple raised $7 billion selling debt in May 2017 with shorter maturity terms.
One reason that has certainly spurred this economic activity is Apple’s tiptoeing the line of profit and liquidity. As 93% of Apple’s cash and liquid securities is held overseas, they are forced to be creative with attaining liquidity.
Should they decide to import that money to the United States, it would be subject to the well-known 35% corporate income tax rate, much higher than their current effective tax rate.
Analysts hold mixed opinions on this enormous corporate decision, both from the perspective of the company and the investor. Being the largest cash-generating corporation in the United States, not much of the concern involves repayment of the debt or any related consequences. However, analysts are skeptical of the benefits as a prospective investor.
Apple’s issuance of debt includes bonds that are structured (including in length) to government debt. While investors may not be expected to place a credit rating of this debt alongside that of government bonds, concern continues past that point. Thirty-year maturity terms on debt from a tech company is something that few would have ever expected to be considered a sound investment option. The technology aspect is the cause of most of the concern.
While there is no doubting Apple’s dominance in the worldwide economy, the firm’s shorter-term bonds still appear to be much better options for many investors. Judging a technology company’s worth thirty years into the future is a daunting task, as for any business. The unique concern for technology corporations, however, is the rate that the former giants have lost their way. Few, if any, may be expecting Apple’s demise in the coming years.
Though, a more realistic concern about Apple is that iPhone sales accounted for 63% of total revenue in the past twelve months. This revelation strikes worry as some believe innovation among the company’s largest product is nearing a halt.
The concern about Apple’s long term debt ratings is not a prediction that the anticipated iPhone 8 will perform poorly. For that reason, analysts are much more comfortable with the shorter maturity debt options that Apple unveiled this past week.
From the corporate point of view, this acquisition of $5 billion makes much sense. Apple, a firm that has historically placed significant value on the intangible aspects of its balance sheet, has no concern about its repayment abilities.
Instead, it sees this move as a way to bring liquidated assets on board ahead of the next dividend cycle, keeping public opinion in a positive realm. Doing so will only aid in the advancement of the firm, whenever it is ready to make leaps with new technologies that will forever change the world.
A version of this article appeared in the Tuesday, September 12th print edition.
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