Well, Stephen, after all "institutional investors = other people's money", and that makes it damn easy to spend it freely without asking too many hard questions as long as the return looks good on paper. Particularly if your own balance sheet (funds' asset values disappearing before your very eyes) and/or profit forecasts aren't looking too hot...

sam

Hardly.

I am more concerned the aged and infirm that buy these bonds do not end up like the Hanover investors - broke and totally dependent on the State for their survival in their retirement. I wish for my son not to be burdened by my generation's errors.

And please do not say it cannot happen here.

The largest commercial bank in the USA is about to topple, check it's share price:

http://finance.yahoo.com/q/bc?s=BAC&t=5d&l=on&z=m&q=l&c=

I would think that going on PeterR's figures Fonterra have over 8 billion of debt now.Id say they are so far up the creek the only option is to keep paddling. I think commissions have been hard to find for investment managers and this was too good to miss.So we still have some fat to be wrung out of the system. Dont forget that fonterra Values its Shares as an asset I believe, so they are very exposed to redemption's.Looks like they are paying too much for milk again, bit rich after criticizing Westland for not keeping up and telling all how they were so much better than the competition. Needed 300 mil took 800 mil wonder where the money is coming from,share market,banks by the time all the bond issues have passed there wont be much left for Govts to borrow.

Andrewj

And what about banks' low deposit interest rates they managed to engineer through the swap market?

Depositor's stampede to trash will certainly put an upward bias on rates as liquidity becomes scare, unless the trusty RBNZ bails them out with 'thin air' cash injections. Opps that's inflationary - another bias towards higher rates.

And lets not forget the O/N implied forex deposit rate on the NZD/USD pair was 4.00% today.

They are simply selling bonds on their past good name. However what sort of rating would these bonds actually have, and what is the actual level of risk. The guy didn't even give the 'current' debt levels, when he was asked for te current ones. Instead he spouted ones that were over 6 months old. The world has moved on a lot in the last 6 months. Yellow pages were going to offer bonds last year, but withdrew them. Since then they have made major losses, so would you buy bonds from them?

In the UK there is going to be hell to pay for these low interest rates,

"Yorkshire Building Society said yesterday that is would maintain its Standard Variable Rate at 4.99 per cent regardless of whether the Bank Rate is cut today. The move is in a bid to protect its savers."
"Yeh Right"
Whole article
http://www.telegraph.co.uk/finance/economics/interestrates/4513106/Furth...

And the game is up in Ireland
http://www.globalpost.com/dispatch/ireland/090203/ireland-the-game

We are heading into peonage and at sometime its going to have to stop. All the people who worked hard and saved are getting screwed while the Govt's try to get out of what amounts to lazy and poor policy decisions.
Every action has a reaction and this one is going to be good one, when the last of the savers has gone, we will all be at the mercy of our creditors. Now Im sounding like Iain, see what you have gone and done. This on UK unrest.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.36yIwF6Hzk

Oh and any sheep farmers out there? my sister in law rang from UK and demand for sheep has collapsed is was holding up well but suddenly vaporised.. That news will get Nationbank/ANZ reaching for the Panadol and Prozac at the same time.

Oh, and remind me what were AIG bonds at before the company went bankrupt? AAA, by S&P in the States. Wonderful things, rating agencies; all care and no responsibility!

Games up for us too.

http://www.globalpost.com/dispatch/ireland/090203/ireland-the-game

The interest rate may yet be more than 7.75%:

The interest rate will be finalised on March 9 and will be the higher of 7.75% or the six year swap rate plus a margin of 3.40% on March 9

Ferrier's comment about satisfying "Investor Demand" is interesting. With the May vote on the share issue shelved, seems rather like the waiter who sends over a free platter of nibblies because the kitchen can't handle the mains.

Im surprised it was so over subscribed. I guess its like someone said above that its sold on its good name of old.

Sure the rate is alot higher than current term deposit rates but I wouldnt be going anywhere near them. 8% of nothing is a pretty low rate.

Gaz B

I suggest you take a reality check - .

Read: 'No such thing as a Treasury bond bubble Yesterday, 01:33 PM.'

http://www.itulip.com/forums/showthread.php?p=74928#poststop

And please stop trolling.

Latest on Milk from USA

POWDER MARKET COMMENTS: More of the same this week for nonfat dry milk. Continuing heavy
production, low exports, moderate at best domestic sales, more sales to the CCC at $.80 per lb, more commercial
sales in the West at prices as low as $.775 per lb, and growing inventories. DMN reports they could find no
truckload sales this week in the West at more than $.84 per lb. The average of the West's "mostly" price range is
again $.80 per lb. December's production of skim milk powder was 51% lower than in December 2007, an
indication of the slow and weak export market for nonfat powders. The Oceania partners, New Zealand and
Australia, are showing signs of frustration and confusion, with New Zealand pointing at Europe as the reason for
the current low prices. (Example: the latest price f.o.b. dock in New Zealand is averaging $.795 per lb, $.16
below the price f.o.b. ports in Europe.) Note to dealers in whole milk powder: try to buy it from Fonterra at $.84
per lb (Fonterra's latest Global Dairy Trade price, February 3rd), and sell it to U.S. customers for $1.10 per lb,
which is what DMN says is the local prevailing price. "Do unto others..."
WHEY MARKET COMMENTS: More of the same this week for the whey market products. Sales are weak;

So $200m on Sanlu, $800m bonds issue, ummm thats $1b in debt in the last 12 months?

When do Fonterra publish their inventory?

I think they where quite amazingly oversubscribed. But thats alot of extra debt to snaffle up.
I guess they know they are going to need it.
About $250 per cow? Extra debt? This year?
When will Fonterra announce a payout forecast for next year ?
Did the farmers give the nod on the extra $500m?
Is Fonterra going to issue any more bonds?

So Steps, the actual interest rate can be manipulated after the deal is done? Above 7.75%? "...caused them to cut back on the offered stock ..." is this right or am I way off track? (its late!)

steve l,

Fonterra should provide interim accounts to the 31st of January 2009, but I don't expect them to give any clues as to their current debt or inventory levels before then.

It would be interesting to track how Fonterra's debt and debt equity ratios have changed since it was formed.

This is why you shouldn't touch this issue

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/456090...

Fonterra is not offering high enough interest. Offshore commodity companies are having to pay over %12 and they are better off than Fonterra. Its a bank scheme to reduce risk and replace it with Mum and Dad investors, they have gone out of there way to keep the interest down, read Stephen Hulme's comments above.

Folk rusing into the corporate debt market should view the cautionary tale that is Babcock:

http://www.nbr.co.nz/article/225m-kiwi-money-risk-babcock-restructure-45230

Many will be being pushed into corporates by advisors - I hope the latter make plain that the risk of corporate debt rises as we head into a depression..........

this from comment here http://www.stuff.co.nz//blogs/stirringthepot/2009/02/12/independent-expe...

Bruce
This is doing the rounds,its about Fonterra and its Bond issue. Someone is getting paid to do some digging.Interesting what is being found. I will try and track source.looks like they value goodwill at 1 billion.
Jock

In 2008 Fonterrra uses IFRS.
For 2006 and 2007 Debt, Equity and Assets are available using IFRS and are used where stated. Otherwise NZ GAAP is used.

Need to:
"¢ Graph Total Shareholder Return

"¢ Provide some analysis of Gross Margins and operating costs

"¢ Look more at valuation of assets and inventory "“ growth in goodwill may be a mirage

"¢ Look into the growing difference between interest bearing debt and liabilities

I have questions over the different equity between the consolidated accounts and those of the parent. The parent is in a worse equity position than the consolidated accounts. I have used the consolidated accounts as that data appears to be that used in reports.

A big issue will be the extent of deterioration of Fonterra's financial position since July 08.

Specific to 2008, based on Fonterra's Financial Statements and Annual review:

This is the first year Fonterra has split its financial data from its annual review.

Please note that the financial statements have been audited by PWC who make it clear in their auditor's report on page 52 that their unqualified opinion applies to the financial statements on pages 1 to 51. Page 4 is the balance sheet, and the last 2 lines in particular tell a story.

Fonterra's annual review is as far as I can determine not audited. It tells a somewhat different story to the financial statements. The last 4 lines of page 40 present similar data to that referred to in the paragraph above but to different conclusions. Stated is a debt to debt plus equity ratio of 57.4%. This ratio uses shareholder funds which is
not the same as equity in the financial statements. It is not hugely different but it lowers the debt equity ratio to 57.4 from 57.9%.

That is minor. Net interest bearing debt is $5.86 billion whereas total liabilities are $10.17 billion. The ratio of liabilities to liabilities plus equity from the financial statements is 70.4%. For the parent this ratio is 80%.

In terms of whether a bank or bond holder gets their money back it will be liabilities relative to assets that matters. Excluding $1.3 billion in payables, $1.1 billion owing to suppliers, tax etc. in communicating debt ratios is deceptive.

It is then worth looking at the quality of the assets. At 31/07/08 there was a $4.3 billion equity buffer. Major assets include $4.3 billion of plant and equipment, $2.7 billion of intangibles (brands, goodwill, software, etc), and $3.3 billion of inventory - $10.3 billion between those three. Are they worth $6 billion in receivership? I doubt it in today's environment: That inventory may be worth less than half what it was at 31/07/08; Goodwill and brands probably no more than half; Plant and equipment will be heavily discounted due to the credit crisis.

The other $4 billion making up the $14.4 billion of total of assets include $2.2 billion of receivables, $600 million of equity accounted investments, deferred tax assets. Some questions there as well.

That data was all for the period to the end of July 2008. In the 6 months since things have undoubtedly got worse: More debt and debt servicing, higher inventory, increased payroll.

The income statement on page 2 of the financials doesn't look good either. You have a retained profit of $235 million after retaining $277 million of the $364 million value-add? But the balance sheet is showing a $609 million loss in total equity? ($766 million loss for the parent).
All the numbers appear to be heading in the wrong direction.

Comment by jock "” 13 February 2009 @ 3:10 pm