Fonterra's rating cut by Fitch

Fonterra's long-term credit rating was lowered to A from AA-. Photo / Supplied

Second agency to cut co-op’s credit rating

Fonterra's long-term credit rating has been cut by Fitch Ratings, the second global rating agency to do so in as many weeks, as falling dairy prices and a volatile market stretch the dairy exporter's balance sheet.

The company's long-term foreign currency issuer default rating (IDR) was lowered to A from AA- while its short-term IDR was reduced to F1 from F1+. The outlook was stable.

Recent volatility in global dairy markets and the slump in prices through much of the year "has illustrated a vulnerability to adverse business conditions" which the rating agency has now taken into account, Fitch said.

Fonterra's decision not to reduce the advance rate to farmer suppliers in line with the slump in milk prices, debt taken on to fund the $755 million purchase of 18.8 per cent of Shenzen-listed Beingmate Baby & Child Food Co, and interest-free loans to farmers to tide them through the current season weighed on the dairy processor's credit profile.

The downgrade follows a similar move by Standard & Poor's last week, which lowered Fonterra's credit rating one notch to A-, citing much the same reasons.

Fonterra chief financial officer Lukas Paravicini said the revised ratings won't impact on the cooperative's approach to farmer payout.

Last week, the company reset the annual interest paid on its $35.1 million of perpetual shares listed on the NZX's debt market to 4.94 per cent from January 10. The notes currently pay annual interest of 4.69 per cent.

Fonterra's net finance costs jumped to $518 million in the year ended July 31 from $366 million a year earlier.

The rating agency Fitch said it anticipates famers' level of debt to the value of milk solids production will remain above its historic average, but that suppliers should be able to service their finance costs aided by industry bodies.BusinessDesk