Non-farm investors will soon be able to gain exposure to New Zealand's dairy industry when Fonterra issues $500 million in units next month that will give them access to the farmer-owned co-operative's dividend flow.
Upon listing, it will be the biggest sharemarket float in either Australia or New Zealand since the partial privatisation of Queensland Rail late in 2010.
The issue will compare with last year's partial floats of Trade Me, which was worth $363 million, and Summerset with $336 million.
Final pricing of the units is expected on November 27 and they are anticipated to list on the NZX on November 30.
The units will form an integral part of Fonterra's Trading Among Farmers (TAF) share trading scheme, which is aimed at offsetting so-called redemption risk and giving farmers increased financial flexibility.
As it stands, Fonterra has to buy farmers' shares when they choose to exit the industry, which exposes the co-operative when many choose to sell at the same time.
The structure is unique to Fonterra, which chairman Sir Henry van der Heyden said made life difficult when it came to selling the idea to farmers because there was nothing to compare it with anywhere in the world. "We think we have modelled it to death, but it is new," van der Heyden said.
Chief executive Theo Spierings said New Zealand was in the unusual position of having 95 per cent of its milk production exported.
"It's a unique situation and it's a unique co-op," he said.
Fonterra has been at pains to point out that the new structure will not involve raising fresh capital.
By introducing the new scheme, the co-operative has tried to strike a balance between dealing with redemption risk, maintaining 100 per cent farmer ownership, and offering outside investors exposure to the sector. There are two components to the scheme - the Fonterra Shareholders' Market and the Fonterra Shareholders' Fund.
The shareholders' market will be available only to farmers and the shareholders' fund will be open to farmers and the investing public.
Under the plan farmers would be able to place shares with the shareholders' fund and be paid for the rights to dividends and any change in market value, while retaining voting rights.
The fund would raise the money to pay farmers by selling investment units, which would be managed through the stock exchange.
The fund will sit alongside the co-operative, not inside it, and will operate along similar lines to a unit trust.
"It will be well-accepted, even though it is an unusual corporate structure," said Shane Solly, portfolio manager at Mint Asset Management.
Units in the Fonterra Shareholders Fund will be pitched between $4.60 and $5.50 a unit, according to offer documents released yesterday.
In the documents, Fonterra forecast a dividend for the 2013 year of 32c a share.
It said the indicative price range implied a gross dividend distribution yield of 5.8 per cent to 7 per cent.
Fund chairman John Shewan said it was an opportunity to invest in units issued by the Fonterra Shareholders Fund, and not an opportunity to acquire Fonterra shares.
"However, the return on a unit is essentially dependent on the performance of Fonterra," he said.
Fonterra forecast earnings before interest and tax of $1.079 billion for 2012-13, up from $1.028 billion in the 2011-12 year.
The co-operative forecasts a net profit for the period of $690 million, up from $624 million in 2011-12.