Oracle’s $10 billion bond sale
On November 8, 2017, Oracle (ORCL) announced a bond sale of $10 billion with five maturities spanning five to 30 years. The sale is expected to be used to fund general corporate causes such as dividends and share buybacks.
In fiscal 1Q18, which ended August 31, 2017, Oracle’s cash reserves stood at ~$66.9 billion, and it had ~$53.3 billion in debt. Prior to the recent bond sale, Oracle sold $14 billion in bonds, which was the third-largest bond deal last year. Like IBM (IBM), dividends continue to be a priority for Oracle. Earlier this year, in fiscal 3Q17, Oracle announced a 27% increase in its dividends to $0.19.
Tech players’ fascination with the bond market
Prior to Oracle, Microsoft (MSFT) and AT&T (T) announced bond sales this year of $17 billion and $10 billion, respectively. There were also some large bond issuances in 2016 led by Apple (AAPL), Microsoft, and Oracle.
We know that a majority of tech (technology) players get their revenues from abroad, and as a result, their cash reserves are also held abroad. So bond issuance becomes a sort of last resort for them to borrow for acquisitions, buybacks, and dividends. That explains why, despite billions of dollars in cash reserves, Apple and Microsoft have raised bonds to fund their acquisitions, dividends, and share buybacks.
The above graph shows that by the end of last month, companies infused $123 billion into the market. That pushed inventories to a record level since July 2014.
Tech companies such as Apple and Oracle that have billions of cash overseas could have been on a bond-issuing spree to take advantage of low financing before a tax reform plan is passed.