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Apple taps markets for record $17bn funding Apple taps markets for record $17bn funding
(about 4 hours later)
Computer giant Apple is asking investors for $17bn (£10.9bn) to help fund extra payouts to shareholders in the biggest ever bond issue by a non-banking company. Apple has raised $17bn (£10.9bn) via a bond sale, the biggest ever by a non-banking company, to help fund its plan for extra payouts to shareholders.
Bond issues - essentially interest-paying IOUs - have been far larger, but only from governments or banks. Last week, it said it will buy back $60bn in shares, and raise its dividend to shareholders by 15%.
Despite the size of the loan being sought, Apple is unlikely to have problems finding investors willing to advance the money. Apple's bond sale, the first in nearly two decades, comes despite the firm having cash reserves of $145bn.
The bonds are being sold in New York. However, most of that money is sitting in accounts outside the US and would be liable for US taxes if repatriated.
By midday New York time, Reuters were reporting the company had received orders for $50bn, about three times the amount being offered. At the same time, interest rates in the US are currently near record lows - helping drive down cost of raising funds for companies.
Payback That makes it cheaper for Apple to raise the money through a bond issue, even though it will attract interest payments.
'Something everyone wants'
The money will be used to fund special payments to shareholders who, after years of seeing their shares rise in value, have become frustrated in recent months.The money will be used to fund special payments to shareholders who, after years of seeing their shares rise in value, have become frustrated in recent months.
Apple shares had lost 45% since last September, as rivals such as Samsung have eaten into the smartphone market it used to dominate and its iPad has faced similar challenges. Apple shares have dipped nearly 40% after hitting an all-time-high in September last year.
Shares rebounded over the past week or so as the company made moves to pass some of its giant cash pile back to investors. The fall has been triggered by concerns over future growth of the firm, not least due to the success of rivals such as Samsung which have increased their share of the smartphone and tablet PC markets, which Apple used to dominate.
Although this month Apple reported its first quarterly drop in profits in a decade, it said it would raise dividends for shareholders. Earlier this month, Apple reported its first quarterly drop in profits in 10 years.
It made a net profit of $9.5bn in the January to March quarter, down from $11.6bn last year.It made a net profit of $9.5bn in the January to March quarter, down from $11.6bn last year.
But the results were better than many had expected, as strong iPhone and iPad sales boosted revenues to $43.6bn.But the results were better than many had expected, as strong iPhone and iPad sales boosted revenues to $43.6bn.
This is an unusual exercise as Apple is borrowing lots of money when - rare for a technology company - it has $145bn in cash sitting in the bank. Despite the drop in earnings, Apple unveiled plans to pass some of its giant cash pile back to investors, sparking a slight rebound in its shares over the past week.
Most of that money, though, is sitting in accounts outside the United States and will be liable for US taxes once it is repatriated. The bond sale generated massive interest among investors. According to some reports, the company had received orders for nearly $50bn, almost three times the amount being offered.
That makes it cheaper for Apple to raise the money through a bond issue - its first - even though that will attract interest payments. Analysts said that Apple's dominant market share in various product categories, coupled with a strong balance sheet, made it an attractive investment option.
The company has also said it plans to buy back $60bn in shares, and raise its dividend to shareholders by 15%. "Apple made its intentions clear that this deal is for shareholder-friendly activity, but they have tremendous metrics and brand recognition," said Rajeev Sharma, portfolio manager at First Investors Management.
"Apple is something everyone wants in their portfolio."