Dairy Equity opens up Fonterra share swaps

Newly listed Dairy Equity Ltd is now able to start spending its $92 million cash on paying Fonterra farmers to "swap" value-added returns and capital gains on their shares in the giant cooperative.

But it doesn't expect a rush from farmers until the end of the dairy season next May.

Dairy Equity chairman Peter Jensen said he expected an orderly uptake of the swaps after the company listed 92 million partly-paid $1 shares today, which were trading at 51c this morning.

Farmers who participate will keep their voting and supply rights and the bulk of the income from the shares -- which is paid as a commodity milk price -- and at the same time receive a lump sum in cash from the company.

"Farmers will soon ... be starting to make plans for the following season," he said.

"To the extent that these plans require capital, swaps provide them with an attractive new alternative."

But Mr Jensen said he expected the uptake of swaps to increase towards the end of the milking season in May, the time usually nominated when dairy farms were changing hands.

Dairy Equity's initial public offering closed last Friday with subscriptions for the original allocation of $80m, plus $12.2m of oversubscriptions, nearly $8m short of the provision for $20m worth of oversubscriptions.

Dairy Equity director and executive chairman of lead manager, ABN AMRO Craigs, Neil Craig, said at the time an unprecedented level of media commentary with mixed messages had an impact on investor sentiment during the offer period.

Last month, Dairy Farmers of New Zealand vice-chairman Lachlan Mackenzie said farmers needed to carefully weigh up the pros and cons before entering into an arrangement with Dairy Equity.

Organisation chairman Frank Brenmuhl said the scheme could give some farmers financial flexibility without threatening Fonterra's co-operative structure.

But some farmers he had talked to about Dairy Equity had suggested that "if they needed to raise equity on their shares they would prefer to go to the bank".

Mr Craig said the initial register of Dairy Equity shares was a mix of private individuals and institutions with the largest holding being American asset management company AllianceBernstein with 12 per cent.

Geoff Brown, NZX head of products today said the listing of DEL was an opportunity to highlight the importance of the agricultural sector.

"There is a lot of interest in the New Zealand dairy sector and investors will now have exposure to the returns generated by our largest export sector and one of the world's leading dairy exporters."

Mr Jensen said the listing created new financial options for farmers and a new opportunity for investors.

And he said changes that Fonterra was making to separate the payments it made for raw milk from the profits it made on adding value to the milk would make swaps simpler by making it easier for farmers to see what they were getting from their investments.

- NZPA