On Monday, June 1, Apple Inc. (NASDAQ/AAPL) released a preliminary prospectus about its plan to issue yen-denominated bonds in Japan. (Source: Apple, June 1, 2015.)
Apple says that the proceeds from issuing these bonds will be used to return capital to shareholders through share repurchasing and dividends. The company will also use the proceeds as funding for working capital, capital expenditures, acquisitions, and paying debt.
Taking Advantage of Low-Cost Borrowing
The June 1 prospectus does not include information on the value of the issue, nor does it specify the interest rate at which the notes will be issued. It does, however, say that the issue date is sometime in 2015 and the maturity date is sometime in 2020. All payments of interest and principal will be made in yen.
According to a report last week, Apple will issue around 200 billion yen, or US$1.6 billion of yen-denominated bonds. The actual amount issued, along with the interest rate, could change with investor demand. It was reported that the proceeds would be used for shareholder returns and expanding Japanese operations. (Source: The Wall Street Journal, May 26, 2015.)
The Japanese central bank’s monetary easing program has led to low borrowing costs in the country. Companies like Apple are eager to exploit the low-cost-funding environment. Local business publication Nikkei said that even after converting back to the U.S. dollar, Apple would still save costs because it could set the interest rate one percent lower than in the U.S.
Of course, exchange rate risk still exists. The USD-JPY exchange rate is at its highest level in almost eight years.
This is not the first time Apple has raised money overseas. Last year, the company raised 2.8 billion euros worth of debt in Europe, maturing in eight and 12 years. This February, Apple raised 1.25 billion Swiss francs from the sale of bonds; maturing in November 2024 and February 2030.