Tech companies, including Apple Inc. (NASDAQ:APPL) and Microsoft Corp (NASDAQ:MSFT), are likely to issue less debt in 2018 as they repatriate cash held overseas, according to analysts at CreditSights.
The analysts expect firms such as Apple, Microsoft, Broadcom Ltd. (NASDAQ:AVGO) and Oracle Corp (NYSE:ORCL) to put an end to issuing bonds to raise funds for shareholder rewards and instead start bringing back their foreign cash pile to the US.
READ: Apple to pay US$38bn in US taxes to repatriate foreign cash under Trump's new law
Apple on Thursday said it would make a one-time payment of US$38bn in US taxes to repatriate cash held overseas following the approval of President Donald Trump’s sweeping reforms.
The iPhone maker said it would spend US$30bn in the US over the next five years, creating 20,000 new jobs.
The new tax legislation has scrapped a previous provision that allowed companies to defer US income taxes on foreign earnings until they returned the income to the country.
Companies will have to pay a levy of 15.5% on overseas holdings repatriated to the US, compared to a 35% rate under the previous tax rules.
READ: Trump’s US tax reform could help Dow reach 30,000 but headwinds remain
Previously companies had opted to raise debt domestically rather than pay the 35% tax rate on bringing back foreign cash to US soil.
“We expect IG tech issuance to be down year-over-year for the first time in about eight years,” CreditSights said in a note to investors.
“Simply put, the large tech credits can use repatriated cash for shareholders returns and/or domestic acquisitions.”
Apple and Oracle carried out bond deals in November ahead of the new tax rules that were passed by lawmakers in December.
Apple was the biggest issuer of debt among tech firms in 2017. It sold US$30bn of dollar-denominated debt to fund its shareholder returns programme, which includes dividends and stock buybacks.