Retail investors snapped up Nestle's Ft15 billion debut bond issuance in Hungarian forint last November. Such was the level of demand that the Swiss company tapped the deal for another Ft10 billion only a few days after its launch.
The deal combined the attraction of a popular household name with the high coupon value of the Hungarian currency. The bonds carried a coupon of 7%. It was priced at 500bp over the five-year Bund. Nestle is a rare borrower but last year's positive sentiment towards the Hungarian forint market provided an ideal environment for the company to issue.
"We needed to be spot-on with our structure," says Frazer Ross, director, bond syndicate at Deutsche Bank, which lead-managed the issue. "And at the time, Hungarian forint was in vogue."
The deal was mainly aimed at the Swiss retail
market (Nestle's home country). Nestle's key market is the Swiss franc but the strategy of sounding out other currency options proved a good one. The company's strong brand and well-performing equity helped to attract retail investors.
Deutsche Bank channelled the paper through its own retail distribution network and also sold it to Swiss, Belgian, German and Luxembourg banks, who passed it on to their retail branches. "The chain is long, but the end investor is the retailer," adds Ross. "Demand starts slowly but once the momentum has been built in the retail networks the end result can be very impressive."
The strong retail demand allowed Deutsche Bank to increase the deal within a few days of the bond's launch. "This
was a unique situation," says Holger Kron, managing director of niche currency Eurobonds at Deutsche Bank. "When we launched the bond there was so much demand that we could tap it after a
couple of days."
Nestle is the world's largest food company, and is the market leader worldwide in coffee and mineral water, the biggest manufacturer of pet food, and is fast increasing its share of the global ice cream market. It has a strong presence in Hungary, where it spent about Ft2 billion on development projects last year. Nestle operates instant drink factories in the country and several other production facilities. Throughout the region it also has a presence in the Czech Republic, Slovakia, Poland, Russia and Ukraine. The group reported that its operations in the eastern European region experienced good organic growth in the first quarter of 2005.
Issuer: Nestle
Date of launch: November 2004
Amount: Ft15 billion (increased to Ft25 billion)
Maturity: Five years
Coupon: 7%
Credit ratings: Aaa (Moody's), AAA (S&P), AAA (Fitch)
Lead manager: Deutsche Bank