Fonterra raises NZ$300M through oversubscribed bond issue

NEW ZEALAND – Fonterra Co-operative Group Limited, New Zealand’s leading dairy exporter, recently concluded a successful bond issue, raising NZ$300 million in an oversubscribed, five-year fixed-rate bond offering. 

The unsubordinated, unsecured bonds attracted substantial interest from institutional investors, signaling strong confidence in Fonterra’s stability and growth prospects. 

Distributed through Joint Lead Managers, Primary Market Participants, and financial intermediaries, the bonds carried a competitive margin of 0.85% per annum. 

Fonterra’s spokesperson highlighted the robust demand as evidence of market trust in Fonterra’s strategy and financial resilience, with the official interest rate and terms expected to be finalized shortly.

These bonds, dubbed “vanilla” due to their lack of additional features, contribute to Fonterra’s diversified funding approach, balancing its mix of debt and bank financing. 

Mark Woodward, Fonterra’s Group Treasurer, emphasized that while bonds serve core financing needs, bank loans cater to seasonal requirements. 

Proceeds from the recent bond issuance will partly address Fonterra’s upcoming bond maturity (FCG050), due mid-November.

This issuance arrives on the heels of Fonterra’s FY24 financial report, which disclosed an after-tax profit of NZ$1.16 billion—a 27.5% drop from the previous year, attributed to fluctuating demand and competitive pressures, especially in the Ingredients segment. 

Despite the profit decline, Fonterra announced a total dividend of 55 cents per share, boosting investor confidence and leading to a 3.7% rise in Fonterra’s share price. 

CEO Miles Hurrell noted that the dividend payout was the second-largest in Fonterra’s history, attributing this to efficient capital management and resilient performance.

In tandem with the bond issue, Fonterra unveiled a refined strategic focus on its core Ingredients and Foodservice segments, marking a shift away from its global 

Consumer business. Chairman Peter McBride noted that this pivot is intended to strengthen shareholder returns, stabilize Fonterra’s balance sheet, and ensure long-term viability by capitalizing on its business-to-business (B2B) expertise. 

The co-op’s Farmgate Milk Price for the 2023/24 season was finalized at NZ$7.83 per kilogram of milk solids (kgMS), combined with the dividend, offering a payout of NZ$8.38 per kgMS to fully shared-up farmers.

Hurrell acknowledged economic pressures in China, a major dairy importer, where demand volatility led to a slight dip in sales volumes. 

Nonetheless, Fonterra reduced its debt by NZ$600 million, positioning the cooperative to invest strategically for future growth and resilience.

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