Fonterra gains set for public offering

Neil Craig, unable to give details of the dairy equity fund offering, says significant interest has been expressed. Picture / Alan Gibson

The public is about to get a chance to reap the benefits of gains in the price of Fonterra shares.

Sharebroker ABN AMRO Craigs has formed a joint venture to market an investment vehicle that will pay dairy farmers cash for the value of their Fonterra shares.

The Dairy Investment Fund (DIF) - whose shareholders include National's finance spokesman John Key and Perry family interests from the Waikato - previously came up with a plan to pay Fonterra farmers the full cash value of their shares.

Ownership of the shares and voting rights would remain with the farmers: only Fonterra suppliers can now own shares.

But farmers would be contractually obliged to give investors the full value of the shares, including capital gains, when they were sold.

DIF had said it wanted to pay for a minimum of $20 million worth of Fonterra shares and that it had a long-term goal of paying for up to $800 million worth.

Director Geoff Taylor said yesterday "there is sufficient [farmer] interest for us now to move into the financing stage" and he was working on this with ABN AMRO Craigs.

Taylor, a former senior Fonterra executive, declined to quantify the level of farmer interest.

He also declined comment on exactly how the joint venture might seek to raise finance.

ABN AMRO Craigs executive chairman Neil Craig said: "The Securities Act precludes us from talking any further on details of such a fund until a prospectus is registered in the public arena."

Craig said this meant he was unable to say how much the public investment offering might seek.

But it was proposed that the joint venture between his operation and Taylor's GT & Co would manage a new vehicle called the Dairy Equity Fund (DEF).

Craig said significant interest had been expressed by farmers' professional advisers in their clients receiving cash from a Fonterra-related fund.

Taylor said progress on DEF's plans would be affected by Fonterra changing its capital structure.

The co-op has recently announced a share price of $5.80 for this season.

But that is due to increase to an estimated $6.62 under the capital restructuring, which involves transferring capital held as peak notes to ordinary share capital.

"That most certainly is a complication in terms of the date on which we can pay the value across for the fair value shares ... it's not till September and, in some cases, December before their fair value share [price] is finalised," Taylor said.

Taylor has previously said that Fonterra's exposure to risk is low and that it needs to start looking at assuming more risk and "backing some winners". He also wanted more financial transparency.

Key, who indicated he was at arm's length from DIF's day-to-day operations, said yesterday that he personally saw "huge potential" in the dairy industry. The sector was "a natural home" for local investors.

Dairying would require a lot more capital in the future and its capital structure was reasonably inefficient.

"Those who would like to invest and get exposure to the industry are locked out often by virtue of the fact they don't own a dairy farm," he said.

"And clearly those who do own dairy farms often don't want to continue to have a constant call on their capital. So there's a clear mismatch."