General Electric Co. is refinancing $5 billion of debt even as it expects to generate $100 billion of cash in the next four years, showing confidence in its ability to invest at returns four times its borrowing costs.
The biggest maker of power-generation equipment sold $7 billion of bonds yesterday at an average 2.58 percent yield in the parent company’s first issue in almost five years. That compares with a 12 percent return that Chief Executive Officer Jeffrey Immelt said last week the Fairfield, Connecticut-based firm generates on its capital.
“GE probably figures they have better uses for their cash at this point than paying off parent-level debt,” Kathleen Shanley, an analyst at bond research firm Gimme Credit LLC, said in an e-mail. “It is logical for the company to want to refinance this offering, especially given the current rock-bottom interest rate environment.”
GE Capital also resumed cash transfers to its parent company in May that were suspended in the aftermath of Lehman Brothers Holdings Inc.’s collapse. It paid a special dividend of $4.5 billion and initiated a quarterly payout of $450 million.
GE’s price-to-earnings ratio of 16 compares with an index value of 14.7, and its 1.7 sales multiple exceeds 1.4 for the S&P 500. The company had lost 18 percent including reinvested dividends since Immelt took the helm on Sept. 7, 2001 through last week, compared with a 65 percent gain for the S&P.