Fonterra unveils Shareholder Fund

22:47, Oct 25 2012

The countdown to dairy giant Fonterra's historic sharemarket debut has begun, with units in its new Shareholders Fund to go on sale on November 5.

Trading on the NZX is expected to begin on November 30.

Launching the prospectus this morning, Fonterra chairman Sir Henry van der Heyden said the fund "provides a unique opportunity for the public to gain exposure to the financial performance of Fonterra and the dairy industry."

Units in the $500 million fund are being offered at an indicative price of $4.60 to $5.50, slightly above the current price for farmers of $4.52.

The price range values Fonterra at $7.4-$8.7 billion.

The final price will be announced on November 27 after a bookbuild in which sharebrokers and institutions submit bids for stock.

The units don't provide a shareholding in Fonterra, which as a co-operative can only be owned by dairy farmers who supply milk to the business. But unitholders will receive dividends equal to those received by farmer shareholders.

In the year to July 2013, Fonterra is forecasting a dividend of 32c a share, so the units will carry a gross dividend yield of 5.8 to 7 per cent, depending on the unit price.

John Shewan, chairman of the fund's board, said although units were not shares their returns would depend on Fonterra's performance.

"Farmers and other investors can purchase units in the fund which will give them exposure to the economic rights of a co-operative share - dividends and capital gains or losses on those shares."

The offer has no public pool so public investment will be limited to clients of certain sharebroking firms - Craigs Investment Partners, JBWere NZ, Goldman Sachs, UBS, First NZ Capital, Forsyth Barr, Macquarie Capital, ASB Bank and ANZ Bank.

The Shareholders Fund is a key part of major reform at Fonterra aimed at stabilising its finances. Traditionally, farmers must own one share for every kg of milk solids they supply to the co-op, and Fonterra issues and redeems those shares according to each farmer's milk supply.

The new scheme means famers will buy and sell shares amongst each other, relieving Fonterra of the obligation to redeem their shares. The $500m Shareholders Fund will buy shares from farmers, helping ensure a ready market.

If not enough farmers want to sell to the fund initially, Fonterra will issue new shares to the fund to ensure the fund reaches its $500m target size.

Once the fund is up and running, the price of its units is expected to be the same as the price of Fonterra shares.

Fonterra, the world's biggest milk processor, is forecasting revenue of $18.6b this financial year, down slightly on 2012 revenue of $19.8b.

Net profit is forecast to reach $690 million, up from $624m.