Apple joins Shell in selling bonds as rate clock starts ticking

[NEW YORK] The world's biggest companies are in a race against the clock.

Apple Inc, the most valuable company on the planet, and Royal Dutch Shell Plc are raising cash in the US bond market, taking what may be one of the last chances to lock in borrowing costs while they're near record lows.

The iPhone maker is marketing its fourth multi-billion dollar offering since 2013 to boost shareholder capital while it keeps its cash holdings abroad. Shell is selling bonds through its US unit for the first time in 18 months.

The companies are coming to the market as economists project the Federal Reserve will boost its benchmark interest rate this year after holding it close to zero since 2008. Companies have issued more than US$653 billion of dollar- denominated debt in 2015, up 8 per cent ahead over the same period of 2014, a year when a record US$1.57 trillion of bonds were sold, according to data compiled by Bloomberg.

"Everyone and their brother is coming to market now," Jack Flaherty, a money manager at New York-based GAM USA Inc, which oversees US$17 billion, said in a telephone interview. "There's a herd mentality forming. Rates are still low, but momentum for higher yields has surfaced, and so there is a bit of a rush to lock these levels in."

The yield on the 10-year Treasury note, a benchmark for everything from corporate debt to mortgages, has risen 33 basis points since mid April to 2.22 per cent. And after touching the lowest levels in almost a year last month, average yields on investment-grade debt have risen, climbing to 3.08 per cent, in the midst of a third straight week of rising borrowing costs, according to Bank of America Merrill Lynch Index data.

"Companies are all getting in before the Fed liftoff," said Jennifer Vail, head of fixed-income research of the Minneapolis-based US Bank Wealth Management, which oversees US$112 billion. "We may see a retrenchment later in the year, but for now companies are still coming, and for the right reasons, firming up their balance sheets further.

Apple will issue the securities in as many as seven parts today, with the longest-dated bonds maturing in 30 years, according to a person with knowledge of the offering. Proceeds will back stock repurchases, capital expenditures, acquisitions and debt repayment, said the person, who asked not to be identified because of a lack of authorisation to speak publicly.

The Cupertino, California-based company announced on April 27 it was boosting its capital-return programme by US$70 billion through March 2017 and that it would be accessing US and international debt markets to help pay for it. Apple may need to issue US$24 billion in global debt to finance the increase that would pay shareholders US$200 billion by 2017, Bloomberg Intelligence analysts Anand Srinivasan and Noel Hebert wrote in a May 1 research note.

Apple may sell the bonds due in 2045 at a yield of as much as 1.45 percentage points more than similar-maturity Treasuries and 10-year notes at a 1.10 percentage-point premium, said the person, who asked not to be identified because of a lack of authorization to speak publicly. The company is also planning to issue fixed and floating-rate notes maturing in two and five years and a seven-year fixed-rate bond.

''It's much cheaper to issue debt with the current very low interest rate environment and return the cash to shareholders that way,'' Jordan Chalfin, an analyst at Creditsights Inc., said by telephone.

Shell is selling debt in as many as five parts, with the longest-dated bonds maturing in 30 years yielding about 1.4 percentage points more than comparable Treasuries, according to a person with knowledge of the offering. Proceeds will be used for general corporate purposes.

The Hague-based company last issued dollar-denominated debt in a US$4 billion offering November 2013, Bloomberg data show.

BLOOMBERG