Dairy Equity shares debut at initial premium

Peter Jensen of Dairy Equity and Neil Craig of ABN AMRO Craigs toast the start of trading. Picture / Sarah Ivey

Dairy Equity's part-paid $1 shares listed on the NZX yesterday and shortly after were trading on light volumes at 52c, a 2c premium to what had been paid for them so far. They closed last night at 50c.

Under the Dairy Equity scheme, farmers get cash for their shares in return for beneficial rights to capital gains and the portion of payout related to returns from Fonterra's value-added activities, such as its branded consumer products.

The NZX debut followed an offer that raised $92 million after seeking up to $100 million. Some investors were allowed to scale down their investment after "mixed" media coverage of the scheme's attractions to farmers.

Geoff Taylor, managing director of Dairy Equity's management company, said a figure for farmer commitments to the scheme was not available yet.

However, Dairy Equity's chairman, Peter Jensen, believed the timing of the launch could not be better.

Farmers would soon be coming out of their busiest time of the year and making plans for next season. Dairy Equity's swaps would provide an attractive alternative to other capital-raising options.

He expected an "orderly" uptake, increasing towards the end of the season in May when most farms and farm businesses change hands.

Meanwhile, Taylor confirmed a new Fonterra measure of value-added returns will be used to calculate farmer payments to Dairy Equity under the scheme.

Previously, Dairy Equity has said it planned to use a measure of value-added, calculated by Fonterra, which last season produced value-added returns of 48c/kg of milk solids.

However, Fonterra's annual report this week effectively confirmed the co-op is to introduce a new measure, closer to one that last season produced a figure of 25c/kg of milk solids, as reported on by the shareholders council. Earlier this week, the council noted the co-op was targeting value-added returns of 45c/kg under this second measure.

An announcement is pending from Fonterra on the exact details of its switch. The first direct value-added payments - under the new system - are expected early next year.

Taylor said that if the new measure produced a lower value-added figure than 48c/kg last season, this could affect early returns to investors.

But he said Dairy Equity was still prepared to pay farmers $6.56 a share initially. "That's a sign of our confidence in the future of Fonterra."