Fitch affirms Fonterra AA- credit rating on global scale, fully-integrated model
Fitch Ratings has affirmed Fonterra Cooperative Group's credit rating, saying its dominance in export markets and fully-integrated business model underpin the dairy company.
Fonterra's long and short term default ratings were affirmed at AA- and F1+ with a stable outlook, and ratings on its senior unsecured notes, subordinated notes and commercial paper were also left untouched at AA-, A+ and F1+, Fitch said in a statement. The rating agency cited Fonterra's ability to sell its entire annual production despite price volatility and its market dominance as key rating drivers.
"Volumes and prices at GlobalDairyTrade auctions which comprise mainly New Zealand products rose over the last month despite the August colostridium botulinum scare," Fitch said. "Fonterra does not take a material amount of price risk as it is able to pass this risk on to Fonterra's farmer supplier/shareholder base."
New Zealand's largest company controls about half of the world's whole milk powder exports, and is the biggest global exporter of dairy products.
"The group's strength in the global dairy trade reflects the quality of its products and its low-cost production," Fitch said. "New Zealand's cost competitiveness arises from favourable climatic conditions for its grass-fed herd, the depth and breadth of Fonterra's supply chain and the scale of the company's operations."
The rating agency also noted Fonterra's brands segment as offering some insulation against a decline in dairy prices.
The rating review comes after the dairy exporter has been under greater global scrutiny when the discovery of bacteria in a whey protein concentrate product raised a false food safety alarm.
Fonterra has been at pains to allay concerns, and chairman John Wilson and chief executive Theo Spierings are returning this week to China to meet with customers and officials.
Units in the Fonterra Shareholders' Fund, which gives outside investors access to the exporter's earnings stream, rose 1 percent to $7.03 today.