Post RSS Feed 
Podcast Feed
Fonterra plans bond issue to raise up to NZ$250 mln to repay foreign debt
January 20th, 2010Fonterra has announced plans to raise up to NZ$250 million through a senior unsecured bond offering in New Zealand to partially refund a 300 million euro debt maturing in April.
Fonterra successfully sold NZ$800 million worth of bonds yielding 7.75% in New Zealand last February after initially announcing plans to raise up to NZ$300 million.
Fonterra said it would mandate ANZ, BNZ and Westpac Institutional Bank as joint lead managers.
“Fonterra intends to use any money raised for general business purposes, including partial replacement of a €300 million Euro Medium Term Note (EMTN) maturing in April 2010,” Fonterra said, adding the bond was distinct from Fonterra’s current offer to farmers to buy additional shares.
You may also like to read:
Loading ...
January 20th, 2010 at 7:26 pm
The other general business will be to pay the farmers the predicted payout. Why not just make the payout the market level and stop the bull*hit
January 21st, 2010 at 2:21 am
So they’re down to paying off their credit card by getting a new one sent in the mail?
Time for rehab.
January 21st, 2010 at 7:09 am
@Will: About sums it up…Over a billion in debt….at some stage they have to clear that debt which means lower payouts for farmers, who are in debt to their hilt….that does not strike me as sound practice.
@AndrewJ: Which seems to equate to using capital / capex to pay ongoing costs / opex….that does not seem sane to me.
I get concerned when I see things like this, suggest the business isnt sound and isnt soundly run…..international investors are more savvy, so I assume are pricing risk in “properly” when the loans are rolled, or not rolling them….so the company comes to “mom and pop” investors at presumably lower rates, that should be sending warning signals…ie why the great run for mom and pop investors now…
regards
January 21st, 2010 at 9:09 am
Im sure ACC will snap it up.
What rating does it have ?
January 21st, 2010 at 9:39 am
Steven,
Fonterra’s liabilities are $11.5 billion.
This does seem like a re-run of last year when Fonterra went to the market supposedly looking for $300 million in working capital, but ended up taking nearly $800 million which was used to back pay bank debt. This time they say they are looking for $250 million for ‘general business purposes’ but have a $600 million loan to repay.
I suspect the offer will again close after their interim accounts are complete but before they are made publicly available.
In YE July 2009 Fonterra’s delivered its worst financial performance ever. It will be interesting to see if Bruce Sheppard recommends his clients take up this offer.
January 21st, 2010 at 11:51 am
All you fellas above have it right. How is Fonterra different from Madoff? Paying debt by incurring more debt is madness.
January 21st, 2010 at 5:19 pm
Ponzterra
January 24th, 2010 at 11:36 am
AndrewJ – what is the market level for payout then? What should farmers be expecting?
And guys – has nobody ever heard of refinancing? Which is always done for a multitude of different reasons. At least it will encourage ‘mom & pop’ investors to diversify away from their addiction to NZ property.
January 24th, 2010 at 12:26 pm
Farmer Will,
I like Fenron or Fontex.
Nik,
Generally described as jumping out of the frying pan into the fire. The agricultural asset bubble is still more over inflated than the housing one – despite values having already dropped 40% from their peak.
January 24th, 2010 at 12:31 pm
PeterAir (or should that be Hot Air) – can you justufy your claims on land prices further.
January 24th, 2010 at 2:10 pm
How is it that dairy farmers are so hooked on Fonterrible ? It was Helen Clark’s joy that they should monopolise the entire NZ dairy industry . That in itself was enough to get my hackles up . And the Commerce Commission were scathing of all dairy being exported from NZ under one banner . I’ll listen to them ( the Commerce Commission ) implicitly , but not to some other silly moo .
January 24th, 2010 at 2:59 pm
RT: Dear, oh, dear. Please get your facts right-All dairy is not exported under one banner from NZ.
Farmers choose to be a Fonterra supplier – it is not compulsory. But it is compulsory for Fonterra to pick up milk from anyone who wants to be a supplier. We are hooked on Fonterra because of our very strong preference for being part of a cooperative and one that has full integration from the farm to the market. I think that is the reason most other suppliers will be ‘hooked on them’ also. I don’t expect anyone from a non-agriculture background/experience to understand as you have stated you don’t, so just accept it.
January 24th, 2010 at 2:59 pm
It’s not that farmers are so hooked on Fonterra per se but rather its co-operative basis – we all know what will happen if/when (unfortunately probably not a case of ‘if’ but rather ‘when’) Fonterra lets in the corporate raiders – the wealth will leave NZ and farmers will become price takers. Just look at the meat industry – most sheep farmers I talk to are pretty envious of Fonterra – they just have a multitude of meat companies all undercutting each other until they’re left with nothing, totally exposed to the high NZ dollar with no hedging etc etc.
The Dairy Industry Restructuring Act (DIRA) was set up as a response to safeguard many different aspects of dairy commerce in NZ. I think most, if not all, of the Commerce Commissions initial fears have since proved to be unfounded.
You may do well to listen to those silly moos – if the moos are doin’ well then so is NZ.
January 24th, 2010 at 3:42 pm
I shall not udder another word on the subject ……….. ‘cept that the silly moo , is of course , Queen Helen . ………. . And I did not say that all NZ dairy is exported under one banner , merely that Fonterrible , as the golden recipient of Her Majesty’s confidence , was deemed to be the flag bearer for the entire industry …. Have they lived up to that high praise ?
( off to mind me own peas and apples )
January 24th, 2010 at 4:56 pm
Farmer Bob,
I suspect I have upset you, and that is probably going to continue. I am not sure why you should be worried about farm asset values falling further. You are making a good return on the money you have invested, and you are not in farming for capital gains. You were arguing that Harts dairy farms are overvalued:
There would be no fun in speculation if hard facts on future asset prices were available. Instead I will start with context, some of which you provided:
Why would prices stop falling? That 40% fall has occurred at a time of very low interest rates and a projected milk solids payout that is higher than representative of the export prices we have actually received. Fonterra may payout over $6.00 this year but that will not be based on NZD dairy commodity export receipts. Dairy commodity prices are also falling quite sharpely. For both reasons expect a lower payout next season. Payout and profitability have a big impact on asset values. Both suggest further falls in asset values.
You state your farm working expenses including management as $2.70 per Kg of milk solids. That is exceptionally good. – MAF’s dairy surveys state NZ’s average expected dairy farm working expenses to be $3.34. That from a time when the payout was still projected to be $4.50 and discretionary expenditure such as fertilizer and maintenance had been cut to below sustainable levels. Realistically, your costs look to be $1.00 per Kg of milk solids below NZ’s sustainable average. But you are still only getting a 7.7% return. That is too low a return for the risk involved, and suggests asset values need to fall further.
There are carbon taxes at least to come on production. They will initially be subsidized by the public, but not for very long. You are then looking at a major unavoidable future loss in asset values.
The dairy industry has other major issues – including both Fonterra and DIRA. The industry is not going anywhere until Fonterra has effective competition. Until then the payout is going to be lower than it would otherwise be. That doesn’t help asset values.
Then there are signs of an industry in desperate times. Today’s Sunday Star Times advertisement is one. http://www.stuff.co.nz/business/3257010/Debt-reshapes-farm-landscape
The removal of Peter Fraser from the dairy portfolio at MAF is another. Fonterra needing to again go to the NZ public for more money, and one of its banks taking a charge over its inventory also count.
In a yet bigger context, the world is experiencing asset deflation. As people get poorer demand is contracting. Dairy commodities included. China’s growth in GDP is all in infrastructure and not in consumption. Bad news.
Investors are being careful. Information is getting out – some of that thanks to sites like this – despite constant spin from vested interests. So farms are starting to be valued on their profitability, and further assets losses anticipated.
Banks have been burned. It is going to be some years before they provide loose credit to agriculture.
As I suggested earlier, there is no reason for asset values to have stopped falling, and many reasons for them to continue their decline.
In a yet bigger context, the world is experiencing asset deflation. As people get poorer demand is contracting. Dairy commodities included. China’s growth in GDP is all in infrastructure and not in consumption. Bad news.
Investors are being careful. Information is getting out – some of that thanks to sites like this – despite constant spin from vested interests. So farms are starting to be valued on their profitability, and further assets losses anticipated.
Banks have been burned. It is going to be some years before they provide loose credit to agriculture.
As I suggested earlier, there is no reason for asset values to have stopped falling, and many reasons for them to continue their decline.
January 24th, 2010 at 5:08 pm
Farmer Bob,
A less screwed up version of the above.
I suspect I have upset you, and that is probably going to continue. I am not sure why you should be worried about farm asset values falling further. You are making a good return on the money you have invested, and you are not in farming for capital gains. You were arguing that Harts dairy farms are overvalued:
There would be no fun in speculation if hard facts on future asset prices were available. I will instead start with context, some of which you provided:
Why would prices stop falling? That 40% fall has occurred at a time of very low interest rates and a projected milk solids payout that is higher than representative of the export prices we have actually received. Fonterra may payout over $6.00 this year but that will not be based on NZD dairy commodity export receipts. Dairy commodity prices are also falling quite sharpely. For both reasons expect a lower payout next season. Payout and profitability have a big impact on asset values. Both suggest further falls in asset values.
You state your farm working expenses including management as $2.70 per Kg of milk solids. That is exceptionally good – MAF’s dairy surveys state NZ’s average expected dairy farm working expenses to be $3.34. That from a time when the payout was still projected to be $4.50 and discretionary expenditure such as fertilizer and maintenance had been cut to below sustainable levels. Realistically, your costs look to be $1.00 per Kg of milk solids below NZ’s sustainable average. But you are still only getting a 7.7% return. That is too low a return for the risk involved, and suggests asset values need to fall further.
There are carbon taxes at least to come on production. They will initially be subsidized by the public, but not for very long. You are then looking at a major unavoidable future loss in asset values.
The dairy industry has other major issues – including both Fonterra and DIRA. The industry is not going anywhere until Fonterra has effective competition. Until then the payout is going to be lower than it would otherwise be. That doesn’t help asset values.
Then there are signs of an industry in desperate times. Today’s Sunday Star Times advertisement is one:
http://www.stuff.co.nz/business/3257010/Debt-reshapes-farm-landscape
The removal of Peter Fraser from the dairy portfolio at MAF is another. Fonterra needing to again go to the NZ public for more money, and one of its banks taking a charge over its inventory also count.
In a yet bigger context, the world is experiencing asset deflation. As people get poorer demand is contracting. Dairy commodities included. China’s growth in GDP is all in infrastructure and not in consumption. Bad news.
Investors are being careful. Information is getting out – some of that thanks to sites like this – despite constant spin from vested interests. So farms are starting to be valued on their profitability, and further assets losses anticipated.
Banks have been burned. It is going to be some years before they again provide loose credit to agriculture.
As I suggested earlier, there is no reason for asset values to have stopped falling, and many reasons for them to continue their decline.
January 24th, 2010 at 8:52 pm
Peter – Just a couple of points.
My farm costs are $2.70 / kg, plus grazing costs of $0.34, gives total costs of $3.04, against average of $3.34. How do you assert that they are $1.00 below the sustainable levels.
You note the payout will fall, most already expect a 10% fall in payout next season, to mid $5.00 range, you will also note that I did my figures on a $5.40 payout, simply because this is the expected mid term average of most pundits (most probably excluding yourself). So really most are pretty well prepared for this. Also with regard to anyone purchasing they will be doing budgets on $5.40-$5.50 which is what the banks are using at present, so the fall in payout will have little effect.
Out of interest what do you regard as falling sharply when you refer to dairy commodities, the last Global Dairy auction saw a drop which was expected by most in the industry as things leveled out, most were actually expecting a small drop in the previous month.
I doubt you have any experience in the agricultural world Peter and hence don’t understand some of the drivers of farm values. Historical data suggests that profitability has not played a part in farm values for a while. Current farm values sit in line or lower than prices when we were getting paid $4.35/kg. Most of the aggresive farmers are hamstrung by debt at the moment, and are focusing on reducing debt, some are being forced to exit completly, however in saying that there is no desperation in the market. Some of the recievers seem pretty happy to keep farming at the present as opposed to fire sales and the banks reasonable supportive of farmers at present. There is no outlook for farm prices to bolt in the next 2-3 years, however I doubt we will see a further reduction in prices. Only time will tell, and really it dosen’t bother me at all, we have no cashflow issues and the cheaper farms get the easier it will be for us to expand our operations.
January 25th, 2010 at 10:50 am
Farmer Bob,
Thanks. I am happy to clarify those points.
I was too conservative with my statement that your costs per Kg of milk solids production were $1.00 below the national average.
You said your farm working expenses were $2.70 per Kg. I am not sure why you don’t say that has now changed to $3.04 per Kg? Anyway you are claiming ‘total costs’ of $3.04 including management.
The MAF equivalent figure (which includes depreciation) is total farm operating expenses. It is $4.50 per Kg of milk solids for the Waikato-Bay of Plenty in 2010. So your costs at $3.04 are $1.46 per Kg milk solids lower than the region average.
MAF’s $4.50 is after major cost reductions from the 2009 season when it was $5.22. Some of those cost reductions that are unlikely to be from price decreases and that will not be sustainable include:
Lime: –47%
Other expenditure: –41%
Repairs and maintenance: –31%
Falling dairy commodities: the USDA reports spot prices for dairy commodities. These prices are good enough that Fonterra use them in their annual reports.
For Oceania spot prices (converted to NZD) fell between the 25/12/09 and 22/01/10 as follows:
Butter: 5711 to 5080, -11%
SMP: 4724 to 3996, -15%
WMP: 5006 to 4403, -12%
In Europe prices started to fall a little earlier – between 11/12/09 and 22/01/10 as follows:
Butter: 7157 to 5622, -21%
SMP: 4801 to 3827, -20%
WMP: 5586 to 4707, -16%
You can find these prices graphed here from 2007:
http://agprodecon.org/images/DairyPrices/OceaniaDairyPricesNZD220110.gif
But the real picture is not spot prices but actual export receipts. These lag and under perform spot prices. The most recent graph I can find on the web is to October 2009. It doesn’t look good but I expect the numbers will be better for November and December:
http://agprodecon.org/images/DairyPrices/MonthlyNZDairyExportPrices271109.gif