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News > International
Nestlé launching ruble bond?
September 6, 1999: 8:28 a.m. ET

Report: Swiss food giant poised to issue $38M ruble-denominated debt issue
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LONDON (CNNfn) - Nestlé, the world's biggest food company, may shortly become the first outsider to tap into Russia's newborn financial markets by issuing a ruble-denominated corporate bond, according to a published report.
     The Swiss food giant, maker of Nescafé coffee, Perrier mineral water and its signature chocolate bars, is considering raising about 1 billion rubles ($38.6 million) by launching a local bond with a maturity of less than a year and a yield in a probable range of 25 to 30 percent, the Financial Times reported.
     Nestlé would not immediately confirm the report to CNNfn.com Monday but analysts said the move appeared to be based on a longer-term view that Russian markets are bound to weather their current turmoil.
     "Some companies are deciding it's cheap to invest in Russia," said Stuart Brown, the chief economist for Central & Eastern Europe at Paribas, in London.
     The bond issue could also provide a bit of a spur to Russia's fledging markets as they struggle to regain their footing in the wake of last year's ruble collapse and the government's default on short-term debt.
     Nestlé has six factories in Russia, situated in geographically strategic pockets in Moscow, Samara, the Ural region and the south, near the Black Sea. Over the past four years, according to FT, the company has invested $100 million in the factories and had earmarked around $30 million for further investment this year.
     That investment, the newspaper said, could go toward starting up a seventh factory or diversifying the product range at existing sites.
     A ruble-denominated bond issued by a multinational giant such as Nestlé might also provide a welcome sanctuary for billions of "trapped rubles" held by overseas investors, the newspaper said.
     In the wake of the Russian debt default last August, the government sought to placate jilted investors by offering them ruble compensation. But in the face of stringent conditions on how much they can convert into overseas currency, many of these rubles have found few, if any, investment outlets.
     The FT said the bond issue may also offer an attractive place for Russian banks to park their swelling deposits of liquid assets.
     The newspaper said Nestlé is mulling whether to offer a dollar hedge to investors who might be skittish about a large ruble debt holding in the wake of the financial crisis.
    
A backdrop of scandal

     The image of Russia's financial markets was dealt a further setback last month when allegations broke that a syndicate comprising Russian mobsters, businessmen and senior officials may have funneled up to $15 billion in illicit funds through an account at the U.S. Bank of New York.
     Law enforcers in several countries are also probing whether $200 million in missing aid to Russia from the International Monetary Fund may have been spirited away in the same money-laundering scandal.
     Against this backdrop, argue some economists, a big corporate bond issue - even by a multinational giant such as Nestlé - is unlikely to instill enough confidence to turn things around.
     "These (Russian) markets have been so damaged that I doubt that one issue is going to markedly change things," said Paribas' Brown.
     "I also think that the problem involving the (money-laundering) scandal and the possible implication that IMF loan money is at stake is (something) that won't go away," he said.
     The FT noted that recent corporate bond issues by Russian energy firms such as Gazprom, Lukoil or Tyumen oil company have fallen relatively flat among dubious investors. But these bonds, unlike that proposed by Nestlé, came with long maturities and relatively low yields.Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.