TAF scheme essential - Norgate

TIM CRONSHAW
Last updated 12:44 08/06/2012
Fonterra
PRICING OKAY: The Commerce Commission says Fonterra's farm gate milk price provides for contestability.

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Former Fonterra chief Craig Norgate says the Trading Among Farmers scheme must go ahead and non- farmer investors be allowed to access dividends.

Norgate said farmers should support the scheme and allow their co-operative to get on with introducing its new strategy, tighten its capital structure and protect against the risk of farmers redeeming shares.

He said there would be repercussions if the scheme failed to proceed.

"Without a mechanism for dealing with redemption risk Fonterra's capital structure is quite weak. While this wasn't of great concern pre the economic crisis, in today's world such weaknesses are no longer acceptable. If farmers vote 'no' Fonterra's board would need to accept that they are unlikely to get support for any sensible proposal and would need to fundamentally downsize the balance sheet."

Norgate said Fonterra would have no choice but to stop many of its overseas investments, potentially sell some and retain large amounts from the milk payout to build a buffer.

"None of this would happen overnight but the cumulative effect would be far worse than the transparent risk of remaining with the TAF proposal."

Norgate warned that scrutiny of the voting result from the June 25 special meeting was beyond New Zealand shores.

"All of the financial institutions I have been dealing with offshore are watching the situation with a keen interest. A number would like to invest in Fonterra but won't under the current proposal given the protections for farmers. Equally they will be like vultures if the proposal doesn't go ahead."

Not all farmers agree and their main concern of allowing outside investors gaining access to dividends paid on non-voting securities listed on NZX seems to be around them eventually gaining control of the co- operative. Fonterra says the scheme will reinforce complete farmer ownership and control of the co-operative.

All shareholders will be asked to cast their vote on a resolution approving the scheme to go ahead, requiring a 50 per cent majority, and six resolutions requiring 75 per cent support. These will tighten the limits on the size of the Fonterra Shareholders' Fund and still allow milk fluctuations to be managed.

The fund would be lowered from the original proposal of 25 per cent of total shares to 20 per cent and reduce the number of dry shares a farmer may hold.

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Fonterra Shareholders' Council chairman Ian Brown said he was confident the council had resolved all the issues raised by a group of shareholders concerned about the size of the fund and the risk of influence by investors.

- The Press

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