The world’s largest tech company, Apple Inc., tapped the Australian bond market on Friday for $2.25bn worth of Australian dollar denominated bonds in three tranches; 4y fixed rate, 4y floating rate and 7y fixed rate. The issue is the largest seen for an international company issuing corporate bonds in Australia as the company was deluged with over $3bn worth of orders.
Pricing for the iBonds, as they are being dubbed, came in at 5-10bps ahead of initial guidance.
The 4y fixed rate tranche was for $400m at 2.88%, or BBSW + 65bps, the 4y floating rate tranche was for $700m at BBSW + 65bps and the 7y fixed rate tranche was for $1.15bn at 3.71% or Swap + 110bps.
Part of the reason for the demand was the high quality of the issuing company and the fact that Apple is one of the few non-bank companies rated AA+ by S&P. This allows investors to diversify their risk into a high quality company that is not directly exposed to the banking system.
For Apple, issuing AUD bonds is a way to diversify its funding base away from USD and partially hedge its sales revenue in Australia. The company has a market capitalisation of around US$650bn and is sitting on a cash hoard of over US$200bn that is stashed around the world, out of reach of the US taxman. If Apple was to repatriate that money back to the US it would immediately be hit with corporate tax at the rate of 35%. So it prefers to keep the money outside the US, borrow money to pay dividends and undertake share buy-backs. The cost of borrowing itself is a tax deduction.
As Apple’s cash pile grows, the risks of borrowing in the one market and one currency grows so Apple began borrowing in yen, pounds, Swiss francs and euro. This latest $A bond issue is a further attempt to diversify its funding sources.
The issue is a tremendous fillip for the Australia bond market that has recently seen SAB Miller issue $700m worth of $A corporate bonds and that is seeking to increase the breadth of corporate bond offerings in this country. The swiftness of the raising and the keen pricing will no doubt encourage other issuers to consider the Australian debt market.