Key Fonterra IPO offers close

Two key offers to buy units in Fonterra's new $500 million unit trust fund close today but the dairy giant is not expected to immediately reveal the level of responses.

Today is closing date for the Friends of Fonterra offer of units to current farmer-shareholders, sharemilkers, permanent employees on both sides of the Tasman, former farmer-shareholders and Australian suppliers.

It is also closing day for the broker firm offer.

A Fonterra spokesman said the level of responses to the offers may not be known for some days.

The minimum application amount under the Friends of Fonterra offer is $2000, up to a maximum of $50,000, except for Fonterra's transtasman employees whose maximum allocation is $25,000.

Fonterra has said applications will be scaled if the value of applications is greater than the value of units allocated, yet to be determined by directors.

Units allocated to NZX broker firms for allocation to their New Zealand resident retail clients under the broker firm offer will be issued to the applicants nominated by those broker firms.

The Australian supplier offer is for up to $25 million of units to supplier shareholders of Bonlac and to suppliers of milk to Fonterra Milk Australia.

All the offers are part of a major Fonterra capital restructure called share trading among farmers (TAF).

The most significant offer under TAF, an invitation to sharemarket investors to buy units in the Fonterra unit trust fund, kicks off on Monday, November 26, with an institutional offer and bookbuild which continues into Tuesday.

That day, November 27, Fonterra will announce pricing and allocations.

Trading of units is scheduled to start on the NZX and ASX on November 30. Unitholders will not be able to vote on Fonterra matters but will receive a dividend equivalent to farmer shareholders.

No shares in Fonterra, New Zealand's biggest company, are being offered under the IPO.The fund will make its first dividend payment in April.

Investment advisor Morningstar yesterday issued a ''do not subscribe'' recommendation on the Fonterra offer.

It said TAF was a ''novel structure'' to participate in Fonterra's growth but pricing uncertainty prompted it to remain on the sidelines.

Morningstar said Fonterra's fortunes were inextricably linked to growth in dairy consumption particularly in Asia and Latin America.

''However we believe the company does not have an economic moat as it generates low returns on capital. We mainly attribute this to the commodity nature of its business.

"The higher margin branded goods category accounting for 35-40 per cent of earnings offers the potential to lift returns but the presence of established multinational players like Nestle and Danone makes this task challenging...''