Fonterra's long-term credit rating has been cut by Fitch Ratings, the second global rating agency to do so in as many weeks, as falling dairy prices and a volatile market stretch the dairy exporter's balance sheet.
The Auckland-based company's long-term foreign currency issuer default rating (IDR) was lowered to A from AA- while its short-term IDR was reduced to F1 from F1+. The outlook was stable.
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Recent volatility in global dairy markets and the slump in prices through much of the year "has illustrated a vulnerability to adverse business conditions" which the rating agency has now taken into account, Fitch said in a statement.
Fonterra's decision not to reduce the advance rate to farmer suppliers in line with the slump in milk prices, debt taken on to fund the $755 million purchase of 18.8 percent of Shenzen-listed Beingmate Baby & Child Food Co, and interest-free loans to farmers to tide them through the current season weighed on the dairy processor's credit profile.