Last week the world’s largest company, Apple, entered the bond market for the first time since 2017, taking advantage of the dramatic decline in corporate borrowing costs.
Anybody who has previously questioned why companies raise funds through loan notes (bonds) rather than through bank loans has their answer from some major players who offered a total of nearly $30bn. Alongside Apple, Coca-Cola issued a bond of $2bn and Yum Brands (owners of KFC) have also entered the market for an unspecified amount.
Banks have done themselves no favours since 2008, when they almost destroyed the financial world, and since then they have tightened their belts considerably. They now offer some shocking rates across the board, whether it be from the current accounts they offer, all the way through to repayment rates on loans.
Due to this, companies have increasingly sought out crowdfunding methods (such as loan notes), whereby they circumvent the banks for speed and convenience. This method enables companies more freedom with their cashflow as well as the opportunity to pay much higher yields than the average investor would receive from their high street bank.
Apple are reportedly offering $7bn of new debt, spanning 5 different maturities, showing that it is becoming regular practice now for these huge multinationals to avoid using the banks wherever they can.
Apple hasn’t issued new debt since November 2017 following tax reform brought in by the Trump administration.
Strong demand from investors led to a lower cost of borrowing for Apple. The company plans to use the proceeds for general corporate purposes, which includes share buybacks, dividends and acquisitions.
Spokesperson for Academy Securities, Peter Tchir, said “It makes sense, we are at extremely low yields, especially for longer dated bonds. Companies are taking advantage of that and I think you will see it continue.”
For our customers at Compare Bonds, this further highlights that bonds are currently the most sensible investment option on the market. When these companies, including the world’s biggest in Apple, are entering the bond market, you know that this is where the smart money is going.
Apple has, without doubt, some of the most sophisticated financial and legal minds in the world in their corner, and the fact that they have made this calculation decision to enter the bond market just highlights that bond investment is the most attractive option to investors, and Apple does not want to miss out on that market.
In related news, Huawei Technologies are also about to issue two separate bonds worth $422 million each, for three year terms, showing that all the major corporations are noticing that the bond market is where to be right now.