Apple in record bond deal

With a $US145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard and Yahoo. Put another way, it could buy every office building and retail space in New York.

Despite its extraordinarily flush balance sheet, the company borrowed money on Tuesday for the first time in nearly two decades. In a record bond deal, Apple raised $US17 billion, paying interest rates near the low-cost debt of the US Treasury.

Apple's return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt?

The answer has a lot to do with the frenzied state of bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing.

But Apple's manoeuvre also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from more than $US700 to less than $US400 last month. In a bid to appease frustrated investors, the company is issuing bonds to help fund a $US100 billion payout to shareholders.

Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. In addition, after a stock buyback, there are fewer shares, which can increase their value.