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Chinese interest in investing in Fonterra's shareholder fund was predictable once the scheme was approved and underlines the need for constitutional protections for the Trading Among Farmers scheme, Federated Farmers says.
China's sovereign wealth fund, the $US400 billion China Investment Corp, is in talks to buy units in the $525 million fund with an investment of less than $US100 million, the Wall Street Journal reported yesterday, citing people with direct knowledge of the plans.
The Fonterra fund aims to raise as much as $525 million selling units in an indicative price range of $4.60 to $5.50 apiece, giving outside investors exposure to up to 7% of the dairy co-operative's equity.
The final price will be set by a bookbuild among institutions and NZX firms on about November 27.
Fonterra says talks between joint lead managers for the offer and institutions are confidential. Approaches have been made to institutional investors in New Zealand, Australia and certain other overseas jurisdictions in Asia and Europe, it says in a statement.
"Until the bookbuild process has been completed, it is impossible to know what any institution's ultimate intention might be."
Federated Farmers dairy chairman Willy Leferink says reports of Chinese interest, if true, "were predictable once the decision to go down this [Shareholder Fund] path was made".
"It further underscores the need for Fonterra shareholders to approve constitutional protections at the AGM around Trading Among Farmers."
Under the terms of the prospectus, no single investors can own more than 15% of the fund, suggesting CIC would be restrained from buying more than about $79 million of the units.
The Beijing-based fund may have trouble securing even that much amid reports broker allocations will be scaled back because of strong demand.
Unit holders will get the rights to Fonterra's share dividends without owning the shares.
The change will take share redemption risk off Fonterra's own books, which has billowed to more than $700 million in recent years, by giving farmers a venue and the liquidity to trade the shares among themselves.
CIC usually does not take a controlling role, or seek to influence operations, in the companies in which it invests, according to its website.