Coca Cola Co, the world’s largest soft-drink company, and a major shareholder in Australia’s Coca Cola Amatil, is said to have hired Deutsche Bank to arrange a series of investor meetings with a view to issuing Australian dollar bonds. If so, it will be following in the footsteps of Apple Corp and Intel Corp issuing bonds in the Kangaroo bond market during 2015.
An Australian dollar bond issue would be a first for CCC although it is a regular bond issuer in other markets. The company has an AA rating from S&P and an A3 rating from Moody’s, an attractive rating for funds seeking to diversify away from financial/bank based bonds. Apple is rated AA by S&P and its Australian dollar bonds were very keenly sought and priced. That issue was in three tranches for a total of $2.25 billion.
A proposed issue by CCC will shine the spotlight again on a growing problem for US tax revenue whereby US corporates keep money offshore rather than repatriate it back to the US where it is hit for US corporate tax at a rate of 35%. At the end of 2014 the Coca Cola Company disclosed it had USD$33 billion sitting in offshore accounts, the 16th highest amount for a US company. As YieldReport has reported on before, a favoured strategy is for US companies to stash funds offshore, away from the reach of the US Internal Revenue Service. Companies then use the cash to issue debt offshore at historically low interest rates with the interest payments tax deductible. In a lot of cases the companies conduct share buy-backs in order to bolster the share price leading to critics saying that while this is good for shareholders, it is also a major benefit for executives on share plan incentive schemes.
The strategy is said to be perfectly legal but with Apple alone said to have over USD$200 billion in offshore accounts, a large chunk of the estimated USD$2.1 trillion in permanently re-invested US corporate earnings, US politicians have been salivating over how to tap this potential revenue source.
For central banks trying to get banks to lend, and corporates to invest in the real economy, the offshore cash recycling is a problem as it doesn’t really help the wider economy generate growth. It would appear thought that this favoured strategy is set to continue for the foreseeable future.
In February 2015, CCC conducted the largest ever euro bond issue by a US corporate. The deal size was €8.5 billion with €2 billion of two-year and 4.5 year notes, and €1.5 billion of eight-year, 12-year and 20-year bonds. Rates were at record lows at the time with an average yield of 0.89% and fell even further a few months later as the ECB began buying bonds in its stimulus programme. There is no indication of any size for an Australian issue but the market has proven it is capable of absorbing a substantial amount. The investor meetings are said to be taking place in the first week of March.