Banks Will Now Fund Fonterra Capital Restructure
Farmers are now likely to fund Fonterra's restructuring after wide-spread rejection of an NZX listing.
We know what that effectively means. Something that was problematic in 1987 to New Zealanders - they will have to borrow more to buy shares.
The overseas banks will fund Fonterra's restructuring.
So what to do? Rather than criticise it, I have an idea to assist.
Fonterra's plans lack expanded vision based on smaller farm ownership structures. Rather than limit the ownership of shareholding to farmers in New Zealand they could and should widen the issue to beneficiaries of family or trading trusts owning these farms. There must be thousands of such beneficiaries out there with spare cash earned in others sectors of the workforce to plug some of the gap.
Then for example wider families with fixed or discretionary beneficiaries (cough, cough) overseas or in New Zealand working in profitable professions could invest say a couple of hundred thousand each in to the company on the basis of being tied into the ownership of these shares legally through their equitable interest in the farm. Those farmers in the gumboots will not turn to such children, relatives or beneficiaries not involved in farming as a group they are too proud to ask for such help, which is half their problem and why Fonterra is in this position in the first place. So why not issue shares to the beneficiary instead of a loan? The beneficiary of the trust is related to the farm with an equitable interest in Fonterra, they are not entirely unrelated parties which would be saleable to farmers as there is no control interest lost or overseas take-over attempts possible.
The voting rights could remain with the farm to which the beneficiary is tied to, yet the equity be issued in the name of the beneficiary related. While it will not raise all the money required, surely reaching into the pockets of the wider Fonterra community is preferable to putting individual farms further at the mercy of overseas owned banks with more debt stresses?
Another idea where there is corporate or collective ownership of farms is to extend the share issue to those who have a shareholding that already has an interest in the farms supplying to Fonterra so the shareholders could get their own shares in individual names. This would widen the control net, however extend the capture of new capital which has rural ties.
The PR is however now:
"There's absolutely no doubt 10 per cent of farmers have no chance of putting money into this thing and another 20-30 per cent are rubbing up against it fairly hard. But there are a whole lot of farmers who have good, strong balance sheets and that are really enthusiastic about seeing Fonterra successful, not just for themselves but for this country as well."
So the restructure will mean:
The 10% struggling are either new entrants to farming or one's who have over-extended.
The 20-30% are over-leveraged older farmers who need another bad season or two to be on the brink.
The remaining say 60-70% of farmers have strong balance sheets? Say what? I thought many of this lot were struggling as well?
Townies will read this and ask if that many farmers have strong balance sheets why then can they not pay their share of pending ETS carbon charges that the rest of New Zealand has to foot the bill for?
So once again farmers what is it? Crying poor, or enough equity when you feel like it?
Farmers will have to accept this proposal as there is no real choice as they declined the NZX listing before it was even proposed formally.
Whether the farmers have the capital themselves to step up and fund it is another story.
Update - Brainy Brent Wheeler has his own take on proceedings. Brent's not an easy read, you have to go slowly. But the basic premise in what he is stating is a
We know what that effectively means. Something that was problematic in 1987 to New Zealanders - they will have to borrow more to buy shares.
The overseas banks will fund Fonterra's restructuring.
So what to do? Rather than criticise it, I have an idea to assist.
Fonterra's plans lack expanded vision based on smaller farm ownership structures. Rather than limit the ownership of shareholding to farmers in New Zealand they could and should widen the issue to beneficiaries of family or trading trusts owning these farms. There must be thousands of such beneficiaries out there with spare cash earned in others sectors of the workforce to plug some of the gap.
Then for example wider families with fixed or discretionary beneficiaries (cough, cough) overseas or in New Zealand working in profitable professions could invest say a couple of hundred thousand each in to the company on the basis of being tied into the ownership of these shares legally through their equitable interest in the farm. Those farmers in the gumboots will not turn to such children, relatives or beneficiaries not involved in farming as a group they are too proud to ask for such help, which is half their problem and why Fonterra is in this position in the first place. So why not issue shares to the beneficiary instead of a loan? The beneficiary of the trust is related to the farm with an equitable interest in Fonterra, they are not entirely unrelated parties which would be saleable to farmers as there is no control interest lost or overseas take-over attempts possible.
The voting rights could remain with the farm to which the beneficiary is tied to, yet the equity be issued in the name of the beneficiary related. While it will not raise all the money required, surely reaching into the pockets of the wider Fonterra community is preferable to putting individual farms further at the mercy of overseas owned banks with more debt stresses?
Another idea where there is corporate or collective ownership of farms is to extend the share issue to those who have a shareholding that already has an interest in the farms supplying to Fonterra so the shareholders could get their own shares in individual names. This would widen the control net, however extend the capture of new capital which has rural ties.
The PR is however now:
"There's absolutely no doubt 10 per cent of farmers have no chance of putting money into this thing and another 20-30 per cent are rubbing up against it fairly hard. But there are a whole lot of farmers who have good, strong balance sheets and that are really enthusiastic about seeing Fonterra successful, not just for themselves but for this country as well."
So the restructure will mean:
The 10% struggling are either new entrants to farming or one's who have over-extended.
The 20-30% are over-leveraged older farmers who need another bad season or two to be on the brink.
The remaining say 60-70% of farmers have strong balance sheets? Say what? I thought many of this lot were struggling as well?
Townies will read this and ask if that many farmers have strong balance sheets why then can they not pay their share of pending ETS carbon charges that the rest of New Zealand has to foot the bill for?
So once again farmers what is it? Crying poor, or enough equity when you feel like it?
Farmers will have to accept this proposal as there is no real choice as they declined the NZX listing before it was even proposed formally.
Whether the farmers have the capital themselves to step up and fund it is another story.
Update - Brainy Brent Wheeler has his own take on proceedings. Brent's not an easy read, you have to go slowly. But the basic premise in what he is stating is a
posted by Cactus Kate at 10:04 PM
4 Comments:
That sounds like a good analysis, from what I have heard, Cactus, and I can understand farmers' fear that allowing non-farmers to purchase shares would dilute and maybe eventually take control from farmers.
Can you fill me in though on why Fonterra are looking for more capital in the first place? Fonterra I think account for something like 25% of NZ's overseas earnings (I could be wrong here?) - so do they desperately NEED billions more to get them out of some sort of shit or what?
Do you have any thoughts on this? What do they need the extra capital for?
I think Fonterra is calling farmers bluff, i.e. come up with the cash if you don't want a stock listing. There are too many unanswered questions.
Is there much liquidity left anywhere?
Is Fonterra really a worthy recipient of these funds? What have they done with the rest?
What about the recent sell out to unions? Who gets to say, who gets to work, who gets to play?
What about the extreme salaries?
In the end, Fonterra will do what it wanted to do in first place.
It is just a mess.
Kate,
I administer several estates and trusts that own dairy farms. I get the sick feeling that I might get sued for incompetence if any of those farms lift their dry shares to 120%, upon my advice. What dividends will those shares get? Will the dividends be fully imputed? How will they be fully imputed if the Co. gets so much of its income from overseas?
So many questions.
So few answers.
Steve of Tu-O-Mo
CK -Re your update re Brent Wheeler's take, your last sentence is unfinished "But the basic premise in what he is stating is a
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