September 14, 2018 / 5:12 PM / a year ago

Borrowers branch out

LONDON (IFR) - Blue-chip corporates including Nestle are seeking to diversify their funding to avoid exposure to individual market risks.

A view of the Nestle Development Center in Solon, Ohio, U.S., April 24, 2018. Picture taken April 24, 2018. REUTERS/Aaron Josefczyk

Over the past week, there has been a surge of interest from companies seeking to do deals in certain markets for the first time.

Among the potential borrowers, Nestle (Aa2/AA-) has perhaps the highest profile. The food and beverage company, which makes KitKat and Aero chocolate bars, is planning its debut 144A US dollar deal. Until now, the Swiss company has always raised US dollars in a Reg S-only format.

Bank of America, Barclays, Citigroup, and JP Morgan are leading the benchmark deal.

“It is the highest-profile mandate in Yankee corporates,” a banker away said of the potential trade. Investor meetings began on Thursday.

Targeting investors in the US makes sense, given that the company’s largest market is the US, according to an investor presentation seen by IFR. In addition, the high-grade market is in rude health.

“Issuance conditions are very constructive broadly in the US market and it is allowing issuers, especially those looking to establish a funding base in dollars, an opportunity to do so now,” said one credit strategist.

It is not just the Yankee market that will see a new name. In the European market, Virginia-headquartered DXC Technology began investor meetings on Thursday for a benchmark euro deal. A couple of Japanese companies are also eyeing the euro market for the first time.

Bankers said it makes sense for corporates to diversify their funding sources.

“Established blue-chip issuers are moving away from their domestic markets to tap funding sources - for either the first time or for the first time in a while,” said one. “High-profile companies are looking to lock in good funding levels in major new markets in order to take pressure off domestic markets.”

US companies are concerned about rate rises, the impact of the trade war situation and the midterm elections, bankers said.

And in Europe, borrowers are keeping a close eye on the withdrawal of quantitative easing, as well as political concerns about Brexit, next month’s Italian budget and the rise of support for populism.

Japanese borrowers are also branching out. Japan Tobacco International is looking to tap the euro, US dollar and sterling markets to diversify its funding structure in a rare instance of a triple-currency trade. The euro and sterling notes will be debut offerings in those markets.

Fellow Japanese company, Nidec Corporation, a maker of small precision motors, is also marketing a debut euro trade that will be a minimum €300m three-year in either fixed or floating format.

This story will appear in the September 15 issue of IFR Magazine

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