The Strategist

Microsoft sells $17 billion of bonds

01/31/2017 - 14:26

Microsoft Corp. sold bonds for $ 17 billion, which has become the largest emission of this year, Bloomberg reported. The company surprised investors with such a major transaction shortly after earning $ 19.75 on another bonds sale in August.

Mike Mozart
Mike Mozart
However, strong demand for Microsoft’s paper allowed the company to raise the bid higher than previously estimated $ 14 billion.

The bonds were issued with seven different maturities from three to 40 years. Among other things, the transaction includes sale of 10-year bonds with a coupon of 3.3%. The proceeds are expected to be directed for general corporate purposes, including repayment of short-term debt that was used to finance purchase of LinkedIn Corp. for $ 26 billion.

This year, companies with investment grade sold bonds at $ 146 billion this year. This is more than in any comparable period on record since 1995, Dealogic’s data show. Many companies are afraid of rising interest rates and possible tax changes, because of which the debt issue may become more expensive, analysts said.

Microsoft released its first bonds in 2009 and continued to issue bonds despite the large-scale stocks redemption program. In September, the company announced plans to increase the dividend by 8% and buy back its own shares at $ 40 billion since Microsoft is getting close to the end of the previous share buyback program.

In general, share buybacks, which are directly or indirectly financed by debt, are unpopular among those who invest in bonds. Investors generally prefer companies that use bonds to refinance existing debt and develop their business. However, those who invest in stocks are usually sympathetic to buyback programs.

Microsoft's share price has climbed 18% up over the past year, yet decreased by 1% at the close of trading on Monday to $ 65.13 per share.

Microsoft’s net profit in II quarter of 2017 financial year has increased by 3.6% to $ 5.2 billion, earnings per share amounted to $ 0.83, revenue increased 1.2% to $ 26.1 billion. Office and cloud services were main drivers of growth, and the company makes a bet on them in the long run.

Microsoft’s results have almost fallen in line with analysts' forecasts for earnings per share ($ 0.79) and earnings ($ 25.3 billion.) and were slightly above last year's values.

In January, Microsoft’s market cap for the first time in 17 years has exceeded the mark of $ 500 billion. As recalled by Reuters, previously Microsoft’s market cap exceeded $ 500 billion in March 2000.

Apple, however, still was the leader in terms of capitalization ($ 650 billion). The second place was taken by Google’s parent structure Alphabet company, capitalization of which reached $ 590 billion.


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