[ad_1]
Today, General Electric (GE) has made two multi-million dollar announcements. In the first case, he stated that he would receive $ 2.7 billion in net proceeds from the reduction of his stake in Baker Hughes (BHGE) to less than 40%.
This update took place a day after Baker Hughes announced that General Electric and its subsidiaries were planning to sell up to 121 million Class A shares in Baker Hughes.
GE's debt will fall as a result of a $ 5 billion bond buyback
In the second announcement, General Electric announced takeover bids for its dollar and euro denominated bonds. As part of the takeover bids, the company is seeking to buy back $ 2.5 billion of GE debt denominated in dollars.
The company is also seeking to buy the equivalent of $ 2.5 billion of debt denominated in euros. The public offerings will be open until October 9, 2019. The market did not seem so enthusiastic about the GE debt tender offer, its stock trading at 0.4% in the red at 13:22 EDT.
At the same time, the S & P 500 Index (SPY) rose 0.56%, while the Dow Jones Index (DIA) rose 0.51%. Baker Hughes' shares (BHGE) rose 0.8% at 14:08 Eastern Time.
Buyback debt: what is the reason?
Under the leadership of current CEO Larry Culp, General Electric is on the path to transformation. In summary, Culp wants to make GE a more focused and less leveraged company. The company's repurchase of the debt is part of its strategy to reduce the ratio of net industrial debt to EBITDA to 2.5 times or less.
The decline in interest rates also motivated the buyout of debt. The European Central Bank announced today a further rate reduction. The Fed should lower interest rates next week. As signals of global recession blink and rate reduction demands increase, there may be more cuts in the future.
As interest rates and bond prices move in opposite directions, lower rates may make the redemption of these bonds more expensive. Longer-term bond prices are more sensitive to changes in interest rates. The fact that General Electric has given priority to long-term bond repurchases – bonds denominated in dollars maturing in 2049 and bonds in euros maturing in 2037 – speaks volumes.
How will the GE debt buyout be financed?
In addition to using the proceeds from the sale of the BHGE stake, General Electric could use the available cash. As at June 30, the company had total cash (excluding GE Capital) of $ 20 billion.
What is the next step in the transformation of General Electric?
With a debt of 100 billion US dollars, GE's transformation process is long. General Electric plans to assess the repayment of intercompany debt to GE Capital and related third parties in order to clean up the balance sheet.
However, this would not really affect the net debt because its cash would be reduced proportionally. To really gain weight, GE may have to rely on selling assets for a while. GE's earnings in the third quarter are expected to be weak as a result of its transformation.
[ad_2]
Source link