Market welcomes chance to get a bite of the dairy sector

Dairying is an attractive industry but difficult to invest in. Photo / Mark Mitchell

Landmark changes at Fonterra which will give investors an opportunity to take part in the country's biggest company will get a warm welcome from the market, say fund managers.

Dairy farmer owners of Fonterra, which posted revenue of $16 billion for the year ending July 2009, this week voted 89.85 per cent in favour of starting share trading among themselves, rather than with the co-operative.

The aim of the changes is to remove redemption risk and provide the co-operative with permanent share capital.

Part of the changes include setting up a Fonterra Shareholders' Fund, which will enable farmers to sell share benefits, including rights to distributions and changes in value, but retain the voting and milk payment rights.

The fund is expected to be a unit trust that will issue units to the public to raise the capital to buy the underlying rights in shares from farmers.

Devon Funds Management principal Paul Glass said it was difficult to say what interest the fund would generate until details were available, including structure, paperwork and valuation.

"But in principle I think the market would be enormously interested," Glass said. "Where the major exposures are in the country it's great if you can get exposure to them via the stock market and obviously in the case of agriculture, and particularly dairying, it's almost impossible to do."

Dairying was an attractive industry, he said.

"The market would love to get an exposure if it could be done in a structure that made sense for all parties."

Brook Asset Management senior portfolio manager Andrew South said there would be a lot of interest in the units.

"The devil's in the detail, though, we'll need to have a better look at it, but obviously like all fund managers we're interested in the sector, " South said.

The changes by Fonterra had improved the flexibility for farmers and provided an investment opportunity, he said. "We like the industry and we think what they're doing is a step in the right direction."

Most larger clients of fund managers required such investments to have some form of listing, South said.

"I think you'd find most funds need that as a requirement to actually be able to invest in them."

Fonterra said farmers might want to buy back share rights at a later date and it was envisaged they would do so at a price determined by reference to the prevailing unit price.

The co-operative said it was expected to take about 15 months to develop the details of share trading among farmers through to implementation.