Wellington. Farmer shareholders in New Zealand’s largest company, dairy cooperative Fonterra, have approved a move to trade shares among themselves, the last in a series of steps to strengthen its balance sheet, the company said on Wednesday.
Fonterra’s 10,500 farmers will be able to trade shares in the cooperative among themselves, ensuring farmer control, while allowing for a fund to provide indirect public investment.
Fonterra shares have previously been directly tied to milk production and the balance sheet has been pressured by the cooperative having to buy or sell shares as farmers have entered or left the industry.
Chairman Henry van der Heyden said the move, which was supported by 90 percent of voting shareholders, would make the cooperative financially stronger and took the issue of capital structure off the table for the foreseeable future.
“This will stop money washing in and out of Fonterra’s balance sheet from season to season and provide permanent capital to grow returns,” he said.
Fonterra controls about a third of the world’s dairy exports and has annual sales of around 17 billion New Zealand dollars, ($11.78 billion) generating more than 7 percent of New Zealand’s gross domestic product.
Farmers in 2008 rejected a proposal to partially-list parts of the cooperative’s operations in a float that might have raised as much as 2 billion New Zealand dollars, citing the desire to maintain full control of the company.
Last month, Fonterra said it expected a higher payout to farmers in the 2010/11 season, because of strong demand and limited supply driving dairy prices higher.
It is setting up an internal market to enable farmer trading, with measures to guarantee liquidity and reduce price fluctuations.
A Fonterra shareholders’ fund will be established to help farmers buy or retain shares they might otherwise have to sell.
The fund would raise money by selling investment units to institutional and retail investors, providing an opportunity for public exposure to the economically crucial dairy sector, of which Fonterra accounts for almost 95 percent.
The first step in its revised capital restructure took place in January, when Fonterra raised 271 million New Zealand dollars by selling “dry shares” to farmers, allowing them to buy up to 20 percent more shares than their milk production would allow.