Apple borrowing billions while sitting on huge overseas cash pile
CUPERTINO — Apple has fat stacks of cash stashed overseas, but that hasn’t stopped the company from borrowing billions to give money back to shareholders.
Why borrow when sitting on $240 billion in cash?
“One five-letter word: taxes,” said Steven Rosenthal, a senior fellow at the Brookings Institution’s Tax Policy Center. Apple has $240 billion in cash held overseas, out of total cash reserves of $256.8 billion, according to Securities and Exchange Commission filings.
So far in 2017, the Cupertino tech giant has issued unsecured notes three times: on May 5 for $7 billion; on Feb. 15 for $1 billion; and on Feb. 3 for $10 billion, according to company filings with the SEC, for a total of $18 billion.
The money, in all three cases, would be used for “general corporate purposes, including repurchases of our common stock and payment of dividends under our program to return capital to shareholders, funding for working capital, capital expenditures, acquisitions and repayment of debt,” Apple said in its filings.
That borrowing followed $23.9 billion in unsecured debt raised last year.
Apple, the world’s most valuable public company with a market capitalization Tuesday at $802.7 billion, did not immediately respond to a request for comment on its borrowing and overseas holdings.
The iPhone maker’s overseas cash holdings — which hit $240 billion by April 1, up $26 billion since mid-September — come from the firm’s transfer of intellectual property and profits to its foreign subsidiaries. Bringing the money home would put Apple on the hook for a U.S. federal tax rate of 35 percent.
“Apple’s shareholders might get somewhat impatient with this large cash hoard offshore,” Rosenthal said. “Apple shareholders might want to see some dividends or some of their stock redeemed.”
Indeed, Apple on May 2 announced it was expanding its capital return program for shareholders, and would spend $300 billion on it by the end of March 2019.
“We generated strong operating cash flow of $12.5 billion and returned over $10 billion to our investors in the March quarter,” Apple’s chief financial officer Luca Maestri said in a news release.
Apple’s foreign reserves help it borrow money unsecured, Rosenthal said.
“The overseas cash signals to the marketplace that Apple has resources if need be,” he said.
Apple’s borrowing this year carries interest rates of 1.6 to 4.3 percent, a fraction of the cost of repatriating hoarded funds.
Apple appears to be waiting on a one-time tax holiday widely expected from Congress, which would let companies bring overseas money home at a far lower rate than 35 percent, Rosenthal said.
“They’re betting that they’ll get tax relief in the near term, and rather than incur the expense of repatriating their offshore earnings, they’d like to defer and hope for another holiday,” he said.
He views such holidays, the last of which occurred in 2004 with a special 5.25 percent repatriation tax, as “a pretty bad policy.”
After the last holiday, companies brought home money, but immediately began stockpiling cash overseas again as the low rate was intended to be a one-time event, Rosenthal said. Apple could be expected to do the same thing in the wake of another holiday, he said.
“They’ll continue this game until they get another holiday, and unless we change the tax structure, they’ll start building (foreign reserves) up again.”