The world’s largest dairy exporter Fonterra said yesterday it would sell more shares to farmers to provide capital for the next five years.
The cooperative, owned by around 10,700 New Zealand dairy farmers, had earlier dropped a proposal to raise capital by floating part of the company on the stock exchange after its farmers insisted that they wanted to retain 100 per-cent control of the business.
Fonterra is the world’s biggest seller of milk powders, butter and cheese, exporting to 140 countries with annual sales of about NZ$17 billion (US$12 billion).
Under the new plan, farmers will be offered around another 20 percent above their current holdings.
Farmers will vote on detailed proposals in November, Fonterra said.
Theoretically Fonterra could raise up to NZ$900 million but chairman Sir Henry van der Heyden said it only expected around half that.
“The options we are discussing with farmers would strengthen the capital structure and make Fonterra more adaptable and competitive,” van der Heyden said. “They seek to encourage farmers to maintain or increase their equity in the cooperative.”
If these are approved, a plan for farmers to trade shares among themselves rather than selling them back to Fonterra could be voted on next year, in a bid to make the cooperative’s balance sheet more stable.
Farmers’ shareholdings are currently based on their milk production, and fluctuating production requires Fonterra to issue and redeem shares.
In the year to June last year it was forced to pay out NZ$742 million in redemptions because of a drought.
“Fonterra can’t afford to have hundreds of millions of dollars washing in and out of the balance sheet every time milk production fluctuates, for whatever reason,” van der Hayden said.
But analysts said many farmers have high debts and it was uncertain how many would be prepared to ask their banks for new loans to finance the scheme.
Others parts of the proposal included eventually persuading farmers to trade shares between themselves instead of buying and redeeming them through Fonterra.
“This would provide permanent equity for Fonterra and would give the cooperative certainty about its capital whatever might happen to milk production in any season,” a company statement said
Fonterra is responsible for about a third of international dairy trading and has NZ$18 billion in assets.
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