Apple Inc. (NASDAQ:AAPL) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A), two of the world’s largest companies, are the latest companies which have boosted bond issuances to a record high as the two companies have just issued $18 billion in bonds, according to Michelle Davis.
In a discussion on Bloomberg’s First Up, Davis also suggests that Apple, which owns one of the most profitable businesses ever, is issuing bonds because it is a simpler way for the company to have cash on hand inside the United States. This move is being made instead of repatriating money the company has outside of the country.
“Today we had two of the world’s largest companies – Apple, the most valuable company on the planet, and Royal Dutch Shell which is about the fourth largest energy company – coming to the market issuing $18 billion in bonds and that puts this year’s issuances at almost 9% more than last year and last year was already a record year. You’re seeing these company’s racing the clock against the [Federal Reserve], they want to lock in low interest rates while they can,” Davis says.
According to the Bloomberg corporate finance reporter, most people are expecting the Fed to raise interest rates later this year and Apple Inc. (NASDAQ:AAPL) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) want to take advantage of the lower rates while they are still available.
“Apple is cash-rich but it has a lot of its money overseas. Instead of repatriating that and having to deal with taxes and tax codes, it makes a lot more sense, at least when rates are low, for it to issue debt because they can do it so cheaply,” Davis tells her colleagues at Bloomberg, adding, “They want to use that money to fund some shareholder payments. Apple has faced some pressure recently to give money back to shareholders so this is the cheapest way for them to do that.”
Apple Inc. (NASDAQ:AAPL), she adds, and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) are great places to put money in at the moment since these are two great names offering investment-grade debt which are made more attractive by the high yield on 30-year treasury bills. The yield is at a 5-month high, Davis says, which means Apple and Shell have to pay a bit more to entice investors to buy their bonds.
David Einhorn’s Greenlight Capital owned about 8.61 million Apple Inc. (NASDAQ:AAPL) shares by the end of 2014.
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