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Visa Establishes Partnerships to Expand in China

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Aug. 18 2020, Updated 4:37 a.m. ET

Increased leverage

Visa (V) took on a debt of $16 billion to partially fund its acquisition of Visa Europe. The company has a debt-to-equity ratio of 54%, higher than the industry average of 40%. The notes are issued at fixed rates of interest ranging from 1.2% to 4.8% with maturities of between two and 30 years.

Before incorporating debt for acquisition, Visa was a debt-free entity. Here’s how some of Visa’s peers in the payment-processing industry have fared with their leverages in the last fiscal year:

  • MasterCard (MA): 22%
  • American Express (AXP): 513%
  • Discover Financial Services (DFS): 203%

Together, these companies account for 2.3% of the Technology Select Sector SPDR ETF (XLK).

Visa had cash and equivalents and available-for-sale investment securities of $20 billion as of March 31, 2016. The company expects significant startup costs for setting up domestic operations in China.

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Renewal of partnerships

In the recent quarter, Visa signed a MoU with China UnionPay where the companies would collaborate on payment security, innovation, and financial inclusion. The company is also helping Chinese government in its efforts to reduce poverty and promote financial inclusiveness. Visa announced partnerships with the China Foundation for Development of Financial Education and the China Foundation for Poverty Alleviation. In March 2016, Visa also signed a cooperation plan with the China National Tourism Administration.

Visa’s total balance sheet stood at $54 billion as of March 31, 2016. This compares to $39.3 billion in fiscal 4Q15. The company generated free cash flows of $7 billion in fiscal 2015.

Visa deploys cash for dividends, share repurchases, investments in technology, and expansion plans. Visa is also engaged in repurchasing its own shares.

During the March quarter, Visa repurchased a total of 24.2 million shares at an average price of $72, totaling $1.8 billion. Visa is authorized to further repurchase up to $800 million of its stock under the existing plan approved by the board.

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