GE Sells Debt Despite $100 Bln of Cash

‘Opportunistic’ issuer takes advantage of low interest rates.

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.

Notes Rise

“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.”

Cash Transfers

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.

PE Ratio

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.

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