Global FDI flow may hit $1.4 trillion; To satisfy investors, Apple borrows money; Even Volkswagon feels Europe's economic troubles

1 Global FDI flow may hit $1.4 trillion (Issac John in Khaleej Times) The global flow of foreign direct investment, or FDI, a driving force in the globalisation process, is poised to stage a recovery in 2013 by hitting $1.4 trillion on the back of an improvement in the worldwide macro-economic environment, UAE Minister of Economy Sultan bin Saeed Al Mansouri has said. Al Mansouri said FDI retained its solidity even during the global financial crisis, prompting many economies seeking to get out of the crisis to look at it as a basic priority. 

The year 2012 has witnessed movements of over $1.3 trillion worth of FDI inflows of which more than 52% was directed to developing countries. According to the United Nations Conference on Trade and Development, global FDI flows declined by 18% in 2012.

2 To satisfy investors, Apple borrows money (Peter Lattman & Peter Eavis in The New York Times) With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard and Yahoo. Put another way, it could buy every office building and retail space in New York, according to city estimates. But despite its extraordinarily flush balance sheet, the technology behemoth has borrowed money for the first time in nearly two decades. In a record-size bond deal, the company raised $17 billion, paying interest rates that hovered near the low-cost debt of the US Treasury.

Apple’s return to the debt markets raises a riddle: Why would a company with so much cash even bother to issue debt? The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates. They are also feeding strong investor demand for high-quality corporate bonds as an alternative to money market funds and Treasury bills, which are paying virtually nothing.

Apple’s maneuver, however, also reflects the unusual challenges of a fabulously successful company with a sinking stock price. Apple is plagued by concerns that its growth may be slowing, and its shares have plummeted from a high last fall of more than $700 to under $400 last month.

In an effort to assuage a growing chorus of frustrated investors, the company is issuing bonds to help finance a $100 billion payout to shareholders. Apple said last week that it planned to distribute that amount by the end of 2015 in the form of paying increased dividends and buying back its stock. Since that announcement, Apple shares have risen 10 percent, closing at $442.78 on Tuesday

Taking on debt can actually magnify the returns for shareholders and improve stock performance, financial specialists say. It can reduce the overall cost of the capital that a company invests in its business. In addition, after a stock buyback, there are fewer shares, which can increase their value.

3 Even Volkswagon feels Europe’s economic troubles (Bill Vlasic in The New York Times) Until now, Volkswagen, the German auto company, had been buffered a bit more than other auto companies doing business in Europe because of its size and strong sales in North America and China. But its shrinking profit margins reflect both the industry’s steep sales decline in Europe as well as intense price competition in the biggest vehicle segments.

Volkswagen joins a growing roster of foreign and US automakers that are struggling in Europe, where car sales dropped 10% during the first quarter, including double-digit decreases in France, Germany and Spain. Most automakers are banking on surging sales in the US to offset some of these losses. And VW’s chairman, Martin Winterkorn, cautioned that the company expected little improvement any time soon in Europe. “The coming months will be anything but easy,” Mr. Winterkorn said in a statement. “The current environment is definitely a tough challenge for the entire industry.” 

The Italian automaker Fiat also reported a drop, reporting that its net profits plunged 88% during the three-month period, to 31 million euros ($40 million), and that revenue fell 2%, to 19.76 billion euros. Last week, the American automaker Ford reported a pretax loss of $462 million in Europe, and projected a full-year loss of $2 billion in the region. And the French carmaker PSA Peugeot Citroën said it expected losses to force new labor talks to cut costs and increase competitiveness. Chrysler has said that its net income fell 65% during the quarter, to $166 million, and revenue dropped 6%, to $15.4 billion.