Fonterra shareholders like cash option

Big Fonterra shareholders are expressing interest in a scheme allowing them to free up capital by selling future increases in the value of their shares.

Last month, the Dairy Investment Fund private equity group said it planned to offer contracts swapping farmers' future capital gains on the Fonterra shares for immediate cash.

Fonterra suppliers are required to hold shares in proportion to their production. The payouts they get include a return on that capital and the shares are revalued each year. Only suppliers can own shares in Fonterra and the fund would take the gains when farmers sold out of it.

Fund director Geoff Taylor said there was significant interest in the contracts from larger Fonterra shareholders. He said the fund always felt the product would appeal to the larger farmers who could see superior rewards from employing their money on "larger and larger farms or perhaps even off-farm".

The fund is building up a register of interested parties and it wants to be able to control gains from at least $20 million worth of shares - out of the more than $8 billion-plus worth expected next season - before committing to contracts.

Taylor did not have a figure for the value of formal expressions of interest nor would he say who had approached the fund.

But he noted two of Fonterra's biggest shareholders were Meridian Energy and the Corrections Department, organisations whose "core competency" was not farming.

Landcorp, Fonterra's second-largest shareholder and the country's biggest corporate farmer, has confirmed it is interested in the scheme.

Chief executive Chris Kelly said his organisation was looking at steering gains from millions of dollars worth of stock to the fund so it could get cash to buy more shares in Fonterra.

"We're growing quite significantly in the Central Plateau so we'd use the cash for buying the new shares that we need to [get] as we accommodate new milk growth."

Taylor said Fonterra's system requiring suppliers to buy shares had been rewarding for a lot of the large farmers.

They appreciated Fonterra gave them a low-risk mechanism of making sure milk was picked up and they were paid a fair price for it.

However, "a number of those query the concept of having to own what is at one extreme a fast-moving consumer goods business".

He said there had also been significant interest in the contracts from professionals giving financial advice, such as succession planning, to farmers as the contracts could be a way of passing on wealth without having to sell the farm.


Dairy Investment Fund

* Fund directors include former Dairy Board executives Geoff Taylor and Peter Schuyt.
* Shareholders include National finance spokesperson John Key and Perry family interests from the Waikato.
* The fund already holds just over 9.5 per cent of Fonterra rival Open Country Cheese, where Taylor is a director.