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Apple’s Secret Cash Management Strategy Just Got Outed

November 1, 2016, 9:39 AM UTC
Apple CEO Tim Cook speaks during an Apple media event in Cupertino
Apple CEO Tim Cook speaks during an Apple media event in Cupertino, California, U.S. October 27, 2016. REUTERS/Beck Diefenbach - RTX2QQT0
Photograph by Beck Diefenbach — Reuters

Korean bankers are fretting that Apple may shun the country’s bond market after a local newspaper revealed that the secretive U.S. phone maker had recently attempted to invest some of its vast cash pile in a local bank deal.

The Maeil Business Newspaper reported on October 12 that Apple (AAPL) had placed an order to buy U.S. dollar bonds of KEB Hana, one of South Korea’s largest banks in asset terms, but that the issuer had chosen not to accept the bid.

The article infuriated Korean bankers, who said Apple was “extremely sensitive” about revealing how it managed its cash.

“This is not a small issue. Apple could stop buying Korean paper entirely,” said a Korean banker, who did not participate in the KEB Hana deal. “This is super crazy.”

Two sources close to the discussions told IFR that Apple had placed an order for KEB Hana’s three-year bonds on October 11 at around 90bp over U.S. Treasuries. KEB Hana began marketing the 2019s at around 95bp over Treasuries and priced later that day at a tighter spread of 85bp to raise US$350 million. Apple didn’t participate at the final price.

U.S. investors were allocated 31% of the three-year tranche, with some of the bonds going to Oracle (ORCL) and eBay (EBAY), according to sources close to the deal.

KEB Hana also marketed five-year notes at around 105bp over US Treasuries before pricing a $300 million tranche at a spread of 95bp. The longer piece drew a far smaller U.S. following, with an allocation of just 7%. The bonds are rated A1/A (Moody’s/S&P).

The Maeil later revised its article, eliminating Apple’s identity. The story still cited JP Morgan Asset Management and Norway’s central bank as participants in the deal. Concerns over Apple’s reaction stem from a similar case in 2014, when a Hyundai Capital Services executive told reporters that Apple had participated in its recent $500 million issue of three-year floating-rate notes.

That, bankers said, upset Apple so much it refused to take part in any future bond issues from the company.

“Apple never bought Hyundai Capital’s bonds again. Hyundai even went to Reno several times, but Apple would never meet them,” said a banker close to Hyundai (HYMTF).

Apple, with its corporate headquarters in Cupertino, California, manages much of its cash and treasury operations through a subsidiary, Braeburn Capital, in Reno, Nevada.

Apple did not respond to a request for comment.


Apple’s total cash, cash equivalents and marketable securities reached a record $238 billion as of September 24, according to a 10-K filing, making it the world’s biggest corporate investor.

How Apple deploys its war chest is a sticking point for shareholders, who have demanded that the company shell out higher dividends.

Apple’s current quarterly coupon of $0.57 per share represents a dividend yield of a little under 2% at the existing share price. Earlier this year, Apple committed to annual dividend increases and, on October 25, CFO Luca Maestri pointed out that it had returned $9.3 billion to investors through dividends and share repurchases in the latest quarter.

Apple announced a third successive quarter of declining iPhone sales last week and forecast lower-than-expected profit margins for this holiday season, despite projections of record sales.

In the third quarter, Apple had a 12.5% share of the global smartphone market, accord to IDC. Korean rival Samsung (SSNLF) led with a 20% market share.

KEB Hana became one of South Korea’s largest banks asset-wise, following the completion in July of a merger between Hana Financial Group and Korea Exchange Bank. Hana bought KEB from US private-equity firm Lone Star in 2012.

Citigroup, JP Morgan, Credit Agricole, Standard Chartered and UBS were joint bookrunners on the KEB Hana offering.