Dairy Farms NZ has cleared Overseas Investment Office approval for the $47 million purchase of five central Southland dairy farms ahead of a further capital-raising and eventual listing on the New Zealand sharemarket.
Dairy Farms NZ chairman David Belcher said despite the current downturn in global dairy milk prices, it was a long-term investor and prepared to wait out the cycle moving up again.
The company was set up in 2014 to provide New Zealand investors the opportunity to directly invest in dairy farming and the latest five farms add to its existing portfolio of two owned and one leased farm in mid-Canterbury. With the latest additions, it will now milk more than 5,500 cows and its portfolio represents around 1,825 hectares.
Belcher said they're currently raising a further $20 million to $25 million for more dairy farm acquisitions as the current downturn provides great buying opportunities.
"Now is a great time to invest in dairy if you take a three-year to five-year view. The investment opportunities are now the best they've been in the past five to eight years," he said.
Belcher said, like with the Auckland housing market, farm prices aren't likely to drop massively, but with an increase in forced sales as banks tighten up on non-performing loans there will be some good buys to be had.
The company's cornerstone shareholder is Chicago-based investor Sam Zell through his EGI-NZ Dairy LLC which lifted its stake to 55 percent from 49.51 percent in order to fund the acquisition of the five dairy farms in Otapiri.
Belcher said Zell's stake will drop back to the 30s with the capital raising and then below 25 percent in an eventual initial public offering on the New Zealand stock exchange. He's not sure what the timing for a listing will be, but said the enterprise value of Dairy Farms NZ would need to double to around $200 million before that occurs.
The company has more than 42 shareholders, most of whom are New Zealand citizens, and the plan is to be predominantly NZ-owned long-term.
Its business strategy is to buy high-quality dairy land in non-drought prone parts of Canterbury, Otago and Southland where Belcher said its research had shown were the best parts of the country for dairy farming long-term.
The company doesn't own the herd and has a 50:50 arrangement with sharemilkers and little or no debt. It means the required breakeven payout is around $1 less than the $5.40 per kilogram of milk solids average for most dairy farmers who have debt, Belcher said. Fonterra Cooperative Group is forecasting a $4.15/kgMS milk payout for the 2015/16 season.
Dairy Farms NZ is having to provide support to its sharemilkers at the current level, he said.
Belcher also remains confident the dairy payout for the 2016/17 season will be significantly higher.
Dairy Farms NZ will now start a $4.3 million development programme on the Southland properties, including environmental mitigation, draining, housing, and a new cow shed.
Its other farms supply both Fonterra and Synlait Milk with one farm having been recently converted to A2 milk to diversify its risk, he said.