Farmer shareholders have three ways to apply the brakes, reports Andrea Fox .
The reality of allowing Fonterra to debut in the sharemarket has hit home to its farmer-shareholders as the dairy giant refuses to confirm or deny a report it is talking with a Chinese state agency about investing in Fonterra units.
A shiver ran through the 10,500 farmer-shareholder base of New Zealand's biggest company yesterday when the Wall Street Journal reported from Beijing that the China Investment Corp (CIC), an investment institution and wholly state-owned company of the People's Republic of China, was eyeing a stake in Fonterra's new unit fund.
CIC, the fifth-biggest country fund in the world with nearly $600 billion in assets under its management, manages a chunk of China's massive foreign exchange reserves.
Alarmed farmer opponents of Fonterra's share trading among farmers (Taf) capital restructure, which is launching the $500 million shareholder fund, said their worst fears about losing 100 per cent control and ownership of their co-operative were realised.
But as Federated Farmers dairy chairman Willy Leferink said, the Chinese interest was "predictable" once Fonterra decided to go down the Taf path and offer units in Fonterra shares to outside investors.
Farmers narrowly supported Taf's introduction in a vote in June.
Fonterra would not be drawn on the report.
In a written response, it said the Fonterra Shareholders Fund institutional offer was being made to institutional investors in New Zealand, Australia and "certain other overseas jurisdictions in Asia and Europe".
Fonterra and joint lead managers for the fund bookbuild had spoken with a large number of institutional investors, it said. "These meetings are confidential."
The bookbuild involved inviting selected institutional investors and NZX firms to indicate the number of units they wished to apply for at a range of prices.
The offer closes on November 21 and is already 10 times oversubscribed.
Fonterra said until the bookbuild was complete, it was "impossible to know what any institution's ultimate intention might be".
Leferink said the China report underscored the need for farmers to approve constitutional protections around Taf at Fonterra's annual meeting next month.
Canterbury dairy farmer Leonie Guiney said farmers were "now scrambling to retain some vestige of control".
"I'm absolutely sick of the lip service being paid to 100 per cent farmer control and ownership.
"We need to ask some extremely hard questions of our leaders."
Guiney said farmers had three "handbrakes" to keep control.
One was to support a December annual meeting remit from former Federated Farmers dairy chairman Lachlan McKenzie calling for a farmer-director majority on the board to be enshrined in the constitution and for farmer directors only to elect the chairman, who must be a farmer.
The Waikato Times revealed last month that one option in a governance review under way at Fonterra is for the number of farmer-elected directors to be cut by one to eight, and non-farmer directors lifted from four to five.
Guiney said the second brake would be farmers passing at the annual meeting a resolution, known as resolution 2, regarding constitutional changes under Taf, held over from the June vote.
The third, she said, was Labour MP Damien O'Connor's private member's bill which seeks to legislatively limit the total quantity of investment units available in Fonterra to 20 per cent, down from the current 25 per cent.
O'Connor's bill has been drawn from the ballot. If passed into law it would require Fonterra to get the support of Parliament to increase the percentage of the company available to investors.
O'Connor said that while farmers had been assured by Fonterra directors that a lowered maximum of 20 per cent would be put to a vote at the annual meeting, the meeting had been delayed until after the Taf launch, posing a "real danger" that Fonterra would be open to greater outside control.
Ian Brown, chairman of watchdog the Fonterra Shareholder Council, said farmer ownership was protected under Taf and the fund size was restricted under the fund-risk management policy enshrined in the prospectus. The council and/or shareholders could call a special meeting and replace the Fonterra board if these were breached, he said.
The initial size of the shareholder fund is expected to be about NZ$500m with no single unit investor permitted to hold more than 15 per cent of the stock.
McKenzie said it was "absolutely imperative" farmers locked in control at the annual meeting. He said they could send Fonterra a very clear message they were unhappy by refusing to ratify the appointment of new independent director Sir Ralph Norris next month.
Coaxing Taf over the vote line after a two-year debate, Fonterra directors argued Taf was essential to provide permanent capital for the company, which currently trades farmer shares itself based on milk supplied.
As well as the shareholder fund, Taf will create a separate share trading pool for farmers.
Units in the shareholder fund will be listed on the NZX and ASX this month.
Unit holders will not be able to vote.
The units will carry a dividend similar to that received by farmer shareholders.