"Flexibility" will be a key to Fonterra's proposed new share-trading provisions to be pitched to farmers at meetings next week, an industry source says.The dairy giant is trying to remove its "redemption risk" -- the chance that it ma
"Flexibility" will be a key to Fonterra's proposed new share-trading provisions to be pitched to farmers at meetings next week, an industry source says.
The dairy giant is trying to remove its "redemption risk" -- the chance that it may have to find a lot of cash to redeem the shares of cooperative members if a lot of farmers decide to cut production or quit the cooperative.
It will next week start a round of meetings with farmers to persuade them to endorse an arrangement where they would buy and sell shares among themselves, rather than rely on the cooperative to buy them back.
The market would be only open to farmers, but would be tweaked to reduce volatility caused by mismatches between the numbers of offered and sought, said the source, who declined to be named.
There would also be flexibility in the administration of share standards, and the ways farmers can use shares to free-up cash, particularly to manage seasonal cashflows.
Retired farmers ceasing supply and sharemilkers looking for ways to build up stakes in their own right -- rather than through their shareholding farmer partners -- are expected to be catered for.
Fonterra orginally proposed in 2007 opening up its shares to outside investors, with cooperative members keeping a controlling stake, but the idea was cried down by farmers concerned about the potential for losing control.
Concerns were raised yesterday about the potential for farmers to use the crucial constitutional vote to "punish" Fonterra directors.
Federated Farmers dairy chairman Lachlan McKenzie said Fonterra would not be successful if farmers perceived it wanted to list the co-operative within 10 years.
He said farmers had long memories, and that some farmers would like to see someone at Fonterra fall on their sword for the 2007 proposal.
But the company is expected to tell farmers the proposed changes will actually make it more difficult for anyone to seek a conventional "float" in the future.
And by making the structure more stable, Fonterra would make it less attractive for future cooperative members to seek added value for their shares through a float.
In future, Fonterra expected retentions from profits to be an important source of capital. But it may also be able to make bonus issues of shares or a rights issue for a major deal.
