Fonterra to redeem notes to lower debt costs

Dairy giant Fonterra said today it was redeeming a large proportion of capital notes because it can get cheaper finance elsewhere.

The move is designed to reduce Fonterra's overall debt financing costs.

The company did not reveal how many notes would be redeemed and executives were not immediately available to comment.

Fonterra will redeem capital notes owned by those people who hold capital notes with a face value of $83,300 or less and will redeem 94 per cent of capital notes for people holding more than $83,300.

Based on the last 10 days trading activities Fonterra announced a redemption price of $1.04833. The redemption will occur on July 10.

Fonterra chief financial officer Guy Cowan said the solid trading and credit history Fonterra had built up since it was founded meant other, cheaper forms of financing were now available.

"This is about maximising the returns to our shareholders. The notes were initially issued and priced at Fonterra's inception, and reflected the information the market had at the time.

"However, there are now better financing alternatives available to Fonterra," Mr Cowan said.

The redemption would be financed through Fonterra's existing funding facilities and would not affect the company's debt to debt-plus-equity ratio. He expected the company's AA- credit rating to be unchanged.

Fonterra has previously used capital notes, which are traded on the stock exchange's debt market, to pay out shareholders either leaving the co-operative or reducing supply, who are consequently obliged to redeem all or some of their Fair Value Shares.

At the end of the current season, however, shareholders will be paid cash for any changes to their shareholding, except for ceasing shareholders surrendering Supply Redemption Rights (SRRs), who will receive Capital Notes for their SRRs in line with Fonterra's constitutional requirements.

Mr Cowan said while the company would be paying cash and not capital notes for shares this season, it would still be able to pay out shareholders with either capital notes or cash in future, depending on which option was better at the time.

"We intend to retain the ability to issue capital notes, and so there will still be on issue notes well in excess of the minimum market value required by the NZDX listing rules. This should ensure sufficient liquidity in the market," he said.

- NZPA