Bloomberg News

Nestle Borrows More Cheaply Than France Amid Haven Appetite

July 12, 2012

Nestle Borrows More Cheaply Than France as Investors Seek Havens

Nestle SA, whose products include KitKat chocolate bars, is benefitting from the demand for haven assets that also sent yields on short-term government bonds from Germany, Austria and Belgium tumbling to all-time lows. Photographer: Gianluca Colla/Bloomberg

Nestle SA (NESN), the world’s largest food manufacturer, is so in demand by debt investors that it’s able to borrow more cheaply than France.

Nestle sold 500 million euros ($610 million) of bonds due July 2019 at a yield of 1.56 percent, according to data compiled by Bloomberg. That’s lower than the 1.58 percent yield on France’s benchmark seven-year bond, on a day when some of the nation’s other rates dropped to records as investors sought the safest securities.

Nestle is benefitting from the demand for haven assets that also sent yields on short-term government bonds from Germany, Austria and Belgium tumbling to all-time lows. As the euro- region crisis deepens, investors are snapping up debt of companies away from the periphery of Spain, Italy and Greece, particularly if they have diversified international businesses.

“We sold out of the gilts and Treasuries,” said Craig Veysey, the London-based head of fixed income at Principal Investment Management Ltd., a unit of South Africa’s Sanlam Group which manages the equivalent of about $3 billion. “With yields as low as they are, you can’t generate a return for your investors. We went into good-quality, investment-grade corporates.”

Melanie Kohli, a spokeswoman for Nestle based at the company’s Swiss headquarters, declined to comment.

Cut in Half

Nestle cut the cost of selling the bonds, its first euro- denominated issue since 2006, by 50 percent in a sign of investor appetite for highly rated corporate debt.

The Vevey, Switzerland-based company priced the securities at 15 basis points more than the benchmark swap rate, after initially marketing them at a spread of about 30 basis points, according to data compiled by Bloomberg.

French five-year note yields fell to as low as 0.888 percent today, while the nation’s two-year rate touched 0.137 percent, both the lowest ever.

Nestle is rated Aa2 by Moody’s Investors Service, the third-highest investment-grade ranking, and an equivalent AA by Standard & Poor’s. France lost its top S&P rating in January, when it was downgraded one level to AA+, one step higher than Nestle. It’s still rated Aaa by Moody’s and AAA by Fitch.

Tighter Spreads

Demand for corporate bonds drove spreads tighter in the past six months. The extra yield investors require to hold investment-grade European company debt narrowed to 170 basis points more than benchmark government notes from 200 basis points in January, Bank of America Merrill Lynch’s EMU Corporates, Non-Financial index shows.

Banco Santander SA, JPMorgan Chase & Co., Mitsubishi UFJ Financial Group Inc. and Societe Generale SA managed Nestle’s bond sale, its fifth this year after issues in U.S. and Australian dollars and Norwegian krone. The Swiss confectioner, whose products include KitKat chocolate bars, had the equivalent of $8.2 billion of bonds outstanding before today’s sale.

“Investors still have good appetite for new issues,” said Michie Yana, a senior investment analyst at European Credit Management Ltd. in London. “The halving of the price guidance is a reflection of appetite for high-quality corporate issuers, especially those in defensive sectors not domiciled in peripheral countries.”

To contact the reporters on this story: Paul Armstrong in London at parmstrong10@bloomberg.net; Mehreen Khan in London at mkhan108@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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