Fonterra to sell up to $525m units at indicative price $4.60-$5.50 a share

The Fonterra Shareholders’ Fund will raise as much as $525 million selling shares in an indicative price range of $4.60 to $5.50 apiece, giving outside investors exposure to up to 7 percent of the dairy cooperative’s equity, offer documents show.

The final price will be set by a bookbuild among institutions and NZX firms on about Nov. 27.

Fonterra unveiled the prospectus for the fund aimed at providing liquidity for the Trading Among Shareholders scheme, one of the biggest overhauls of the dairy giant’s capital structure since its inception in 2001. Unit holders will get the rights to Fonterra’s share dividends without owning the shares. The change will take share redemption risk off Fonterra’s own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

Under a section on investment risks in the prospectus, the fund is described as having “a novel structure”

Dividends for the 2013 year are forecast to be unchanged at 32 cents a share, representing a yield of 5.8 percent to 7 percent based on the indicative price range, on forecast profit of $690 million. Normalised earnings before interest and tax for 2013 are forecast at $1.079 billion from $1.028 billion in 2012.

The units are scheduled to start trading on the NZX and on the ASX on a deferred settlement basis on Nov. 30.

The arrival of the units is seen as a shot in the arm for the NZX, which has faced stagnating new issues and will get a further boost with the sell down on state-owned energy companies. Up until now, outsiders have only been able to get exposure to New Zealand’s biggest exporter and largest company by holding the NZDX-listed bonds.

“Farmer shareholders and unit holders will invest in the performance of Fonterra through separate structures,” chairman Sir Henry van der Heyden said. “What they have in common is the chance to be part of the continuing performance of our cooperative – a New Zealand success story.”

The fund will offer $500 million of units with provision for over-subscriptions of $25 million. Depending on the price, that would see a maximum of 91 million to $109 million units issued. Fonterra shares on issue after the offer will be 1.586 billion to 1.598 billion, giving the group an implied market value of $7.35 billion to $8.7 billion.

Units will be set aside for two groups under the offer. So-called Friends of Fonterra can subscribe for up to $50,000 each, with no limit set, while up to $25 million of units will be offered to shareholders of Bonlac Supply Co under the Australian Supplier Offer.

The Farmer Shareholder Supply Offer will open on Nov. 2 and the farmers will be able to sell into the fund the economic rights to up to 25 percent of their so-called wet shares and any dry shares surplus to the so-called share standard for the season.

Since there’s a chance farmers won’t offer up enough shares to meet the minimum fund size of $500 million, Fonterra will issue shares to make up the shortfall.

Fonterra exports about 2.6 million tonnes of dairy products a year, accounting for about 21 percent of dairy shipped across borders and 46 percent of whole milk powder shipments.

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