The world's largest food group, Nestlé, has held on to its gilt edged credit rating from Moody's Investors Service despite taking on extra debt as a result of its acquisition of United States-based group Ralston Purina.This content was published on May 3, 2001 - 10:14
Moody's confirmed the "Aaa" senior long-term debt ratings of Nestle. It added that, once the Ralston Purina takeover is complete, it will raise that company's senior long-term debt rating to Aaa from A3 and its short term rating for commercial paper to Prime-1 from Prime-2.
Moody's Investors Service is a leading global credit rating, research and risk analysis firm which publishes credit opinions, research, and ratings on fixed-income securities, issuers of securities and other credit obligations.
The confirmation of Nestlé's credit rating reflects Moody's expectation that Nestlé will "continue to present a very low level of business risk, backed by a superior product and geographic diversity, and an exceptional portfolio of market leading brands, which provide Nestle with a very strong cash generation ability".
Moody's qualified the statement, saying that it recognises that the proposed acquisition of Ralston Purina, financed mostly with additional debt, will stretch Nestlè's finances for several years and will restrict its ability to complete further large debt-funded acquisitions within the existing rating.
The upgrade of Ralston Purina's rating reflects Moody's opinion that the company will form an integral part of Nestlé. The acquisition should be completed by the end of the year.
Nestlé's operating profitability has been improving since 1997 when the company embarked on a restructuring programme, which focused on its weaker businesses while reducing costs and also selling some non-strategic brands.
These moves, according to Moody's, are now bearing fruit and are currently being further pursued with the Globe initiative.
"However, Nestle has not yet matched the operating profitability of its best peers in the consumer products industry," said the credit agency.
"Nevertheless, Moody's believes that Nestlé's strong competitive positions in most of its markets, the strong equity value of its brands, and the superior geographic and product diversity of its businesses provide an offset to its weaker financial and operating measures."
Canton Vaud-based Nestlé had revenues of SFr81 billion in 2000.
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