KEY POINTS:
Dairy Equity is pinning its hopes on Fonterra shareholders rejecting a partial float of the co-operative after its capital review, saying it already offers them a "quasi-listing" that lets them raise capital while retaining control.
The company has admitted the take-up of its scheme offering the public exposure to Fonterra equity has been less than stellar, with just $4.23 million invested in Swap agreements. Swaps are agreements Dairy Equities makes with Fonterra shareholders to buy "fair value shares" - shares for each kilogram of milk solids they supply to Fonterra.
Dairy Equities managing director Brian Cloughley said despite the uncertainty created by Fonterra's capital review announcement, he was encouraged by the level of acceptance from farmers over the past month, with a further $10.35 million in Swap agreements pending.
Cloughley said while some have suggested Fonterra's capital structure review may lead to a partial listing, it would be hard for the board to get the 75 per cent of shareholder votes needed to approve such a change.
Dairy Equity's "quasi-listing" already offered what the review was trying to achieve. "They [shareholders] get all the benefits of listing without having to list."
Contrary to rumours that Dairy Equity could be wound up, Cloughley said the company now had 3000 shareholders thanks to a partnership with National Bank which gave the scheme the backing of "200-odd" rural lending managers as well as word-of-mouth.
Dairy Equities floated last September with a $1 share price, aiming to give the public exposure to equity in Fonterra. Dairy Equities shares closed at 46c yesterday.
"We've embarked on extensive advertising throughout the balance of the financial year to make clear to people this option," Cloughley said.
He said large corporate farmers - the company's initial target market - had adopted a "wait and see" approach until after the review, so Dairy Equity would revisit those clients when the outcome was known.
Cloughley also said an announcement was imminent about the sale of a 50 per cent stake in Dairy Equity's management company by the company of former managing director Geoff Taylor, whose resignation may have hampered uptake.
Farmers have hit back at Dairy Equity's claim that their poor understanding of the product has hampered it in its first nine months, saying the scheme was poorly communicated.
Fonterra shareholders council chairman Blue Read said that while the scheme allowed farmers access to capital while keeping their shares, more information had been given to potential investors than to farmers.
He said farmers had several other ways of capturing share capital - such as contract milking - and not many people would want to pre-empt the capital review's outcome. "Fonterra hasn't greeted it [the scheme] with any great enthusiasm. I don't think we have either."
Frank Brenmuhl, chairman of Dairy Farmers of New Zealand, said that while he was not a Fonterra supplier, he agreed many would "wait and see".
"It's not something that farmers are going to rush into overnight."
However, Fonterra supplier Lloyd Downing wondered if Dairy Equity's scheme might be a better option than fully tradeable shares.
