Fonterra units rocket up 22% in NZX debut

UPDATED:

Fonterra Shareholders' Fund units soared as much as 22% on their NZX debut as investors leap at the chance to get access to the dairy exporters' earnings stream, though no farmers used the scheme to trade their own shares.

The units jumped as high as $6.71 from the $5.50 offer price set in this week's book-build in a flurry of trading. The price settled back to $6.60, with 12.6 million units, or about 13% of the fund, changing hands.

"Today we have permanent capital based on a true market price," Fonterra chief executive Theo Spierings says. "We have seen that true market price just now."

None of Fonterra's farmer shareholders used the mechanism to trade shares among themselves.

"Farmers will watch and see what happens. They have got a lot of time to make their decisions," says chairman elect John Wilson, who confirmed he hasn't personally taken up units. Fonterra plans to make "another couple of offers to farmers in the new year" of shares. The details cannot be made public yet.

Mr Wilson says he expects the units "will settle down over time and end up trading on their fundamentals". But in the first flush of trading "we know there's been so much demand".

Fonterra chief financial officer Jonathan Mason says the new opportunities will let farmers trade their production shares, as spelled out in the prospectus, though the board has yet to decide on the detail.

Given the strong demand for the units, Mr Mason says Fonterra will consider a retail bond offer as existing debt matures.

"Another retail bond is clearly one of the ideas we would look at as maturities come up", though he noted that in recent months they have offered more attractive interest rates.

Some 58% of the $525 million of units were allocated to New Zealand retail and institutional investors and the class of investors known as Friends of Fonterra, which includes Australia's Bonlac. The rest were sold to foreign institutions.

The change will substantially reduce the share redemption risk on Fonterra's own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

While the fund attracted massive demand, the pricing was deemed too rich for research firm Morningstar, which last week gave a "do not subscribe" recommendation.

Morningstar said investors would be better served waiting for the units to list and consider buying in if the price fell to $4.95.

(BusinessDesk)


12.15pm:

Units in the Fonterra Shareholders' Fund jumped 21% on their debut as investors clamoured to get more exposure to the dairy co-operative's earnings after a $525 million initial public offer.

The fund, which grants holders access to Fonterra's dividends but not voting rights, opened at $6.66, after the issue price was set at $5.50 after a bookbuild, the top end of the indicative range.

It recently traded at $6.70, with some 3.9 million units changing hands in the first few minutes of trading.

The units climbed on heavy volumes even as this story was being published.

Some 58% of the units were allocated to New Zealand retail and institutional investors and the class of investors known as Friends of Fonterra, which includes Australia's Bonlac.

The rest were sold to foreign institutions.

The change will substantially reduce the share redemption risk on Fonterra's own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

No farmer shareholders used the new facilities to trade Fonterra stock among themselves.

While the fund attracted massive demand, the pricing was deemed too rich for research firm, Morningstar, which last week gave a "do not subscribe" recommendation.

Morningstar said investors would be better served waiting for the units to list and consider buying in if the price fell to $4.95.

(BusinessDesk)

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36 Comments & Questions

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What a rort!

Foreign investors given an easy 20% profit, while Kiwi investors are left on the sideline.

We have to pay $4 for a litre of milk and then they allocate the profits off to overseas institutions!

Fonterra, New Zealand's biggest company and screwing New Zealanders since 2001.

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You comments are poorly thought out and not based on facts... My contention would be that the purchasers of the increased price shares are overseas investors so they are paying the premium, not NZers. But then I know as much about that as you - we don't know who has bought the shares, so we can't draw any conclusions - well at least not rational reasoned conclusions. And, by the way, all the profits do NOT go off overseas - the company is owned by and decisions made on it's operation by NZ farmers... clearly not something you have understood before making your comment...

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You could ahve purchased some of the shares, and then sold them also, to make a 20% return virtually overnight.
Had you purchased any shares??

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Could have purchased shares? Theses shares were allocated to overseas investors, not kiwis. The beginning of the end of a kiwi - owned Fonterra co-op.

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Wrong on a couple of points.1. the shares were not all alllocated overseas. I don't know how many went where and I'm betting you don't either. 2. It is NOT the beginning of the end as the investor shares have no voting rights and the farmers still own and control the company. I don't understand why you as surely it isn't based on facts.

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Of course he did not. He has vitriolic fingers (I know) but an envious jealous spine.

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And it will fall after the Stags have gone!!

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Wow the Ford dealers are in for a healthy December !

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NZ farmers didn't sell shares into the pool. Fonterra created new shares , thus diluting the value for existing shareholders. You have it backwards.

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Speculative wealth for overseas investors while NZers got scaled back. We should remember this when Fonterra talks about NZ Inc or wants a policy change to favour their business model.

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Proof that the directors of Fonterra did an average job in the pricing and offer structure - at the peril of Fonterra farmer shareholders.

A premium on listing of more than 10% is a mispriced issue.

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Early days surely. The early birds could be turkeys.

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This NBR site is a good website - it could be improved substantially if it got rid of the ability to comment after seeing the nonsense that gets put on it. Above are good examples.

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Are you serious? New Zealand lacks local investors! It's a nonsense that Fonterra is screwing anyone here. You should be pleased that the market cap of NZX is growing and critique in the above comments has no ground.

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Worst. Company. Ever.

Almost impossible for NZers to get an allocation in this. Meanwhile, they pollute our rivers, hold the country to ransom with sky-high milk and cheese prices, and pay only minimal taxes http://www.stuff.co.nz/the-press/news/5017279/Dairy-farmers-paying-no-tax

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Well, they pay minimal tax because they make no profit after the banks take penalty interest.

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Talk to supermarkets about their mark-up on dairy. Do some research before making these ill-informed comments.

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There was a small group of farmer shareholders who sold into this issue at $5.50.
They were probably pressured to sell by their bankers.
Hope they take the appropriate ACTION!

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Every New Zealander had the opportunity to invest in these shares. For those who were not quick enough or didn't, then that's really tough luck.

Fonterra pours millions of dollars every day into communities, be it payouts to their farmers or salary and wages to employees, to name a couple of ways.

It seems unusual to blame Fonterra for the people who invested in their float. If foreign investors were savvy enough to purchase shares then good on them. We all had the same chance given to us.

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Every New Zealander didn't have the opportunity to invest as the lead managers put large licks of the stock offshore. It should be a worry that in the last issue prior to Mighty River Power, the major investment banks are still head in the ground over the extent of retail NZ demand and a warning for the government to design a process that allows retail demand to be filled before institutional demand.

Rumour has it 3.5 billion of retail demand in NZ - and most brokers apparently got less than 25% of demand, so had to say no to significant numbers of clients. That is hardly offering every NZer the chance to invest. A true investment would have had a proberty audit run book build.

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Thanks for the freebee, bosses.

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That comment must be from Fonterra's staff canteen.

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True market price = lemmings herding. Lambs to the slaughter. Selling commodities with no differentiating factor. Wow, what a good business.

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Yet it's NZ's biggest business, you muppet. Nothing brings more to this country than Fonterra. Not even Peter Jackson. You want in? Buy a dairy farm. Simple.

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So adding value to raw materials from primary industry is not the way forward? That will be why everybody has ignored the findings of the recent Harvard think-tank.
Of course, we can get rich selling milk powder to the poor . Those industry leaders didn't have a clue: what did the think-tank junket cost again?
On the other hand , perhaps Fonterra really does have a plan to sell real fresh (ie, not reconstituted from SMP, AMF and WPC) cultured foods to the rich people of Asia .
Let's see now: we could possibly let the richest 10% of Asia have about 20 litres of milk each in total / annum.

Hard sell?

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I hope Brian Gaynor bought me a swag of them... Great fund manager.

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Never trust a man with a beard....

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Brian Gaynor is the top fund manager in NZ.
I bought $5000, which was all I was allocated.
Local investors would have bought a heap more if they had had the opportunity.

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Great to see 23% of the total issue traded today. Obviously, really long-term investors in the brokers' (institutional) allocations!
Really guys, you'll be able to buy them much cheaper after Xmas when all the stags have gone and poor old mum and dad buyers wake up to the fact that the pros have screwed them again!

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People wonder why the price was set at $5.50 and very few shares for local investors. The price was set to allow the money men to make their profit first, then the locals can fight over the crumbs and losses later on.
Talk about a corrupt country. As for using advisers, that' s OK until you get locked out of a decent IPO. I think I have finished with my advisory firm, one of the biggest in the country. Just a joke.

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Buy a dairy farm.

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Ditch milk..... Go for the weight-less Xero. Goes up 20% very few week.

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I made a paper profit today of over $1.5 million and I feel like Brendon Horan, without his side issues. Wilson and co have come up with a grand plan for our generation to plunder the spoils. Co-operative members of the Fonterra co-op need to remove Wilson off the board. He is dangerous.

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Hi,

Big day for the Co-op and because Theo has been down on the ground at Darfield we wanted to bring you this email update together.

Was a double celebration today.
Rang in a new era with the start of trading on the Fonterra Shareholders’ Market and launch of the Fund.
Fonterra shareholder Philip van der Bijl rang the market ‘cow’ bell at midday to mark the start of trading.
A short time later the Prime Minister also officially opened our Darfield site.
Price opened at $5.50, bumped around a bit as expected and closed at $6.85.
Don’t be surprised to see more of this price movement over the coming weeks while the shares and units establish their value.
No need to trade shares immediately. All farmers are already compliant with the Share Standard for the current 2012/13 season.
Expect a lot of media interest and commentary around price, but don’t get sidetracked by it.
We’re certainly not going to get distracted.
TAF was about removing redemption risk and giving farmers some more flexibility. Great that this is now behind us.
Our focus is on the payout, getting more money into your hands.
We are conscious that cash flows are tight and you can be assured that payout is our top priority.

Cheers,

Henry and Theo

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What will happen if any of the following happen?
1.interest rates rise substantially
2.milk solid prices fall
3.milk solid prices rise substantially

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More power to the powder.

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