Fonterra eyes start dates for internal share trading

Fonterra is looking at launching trading in the cooperative's shares to align with its half-year or full-year balance dates.

The proposed "trading-among-farmers" depends on what requirements the Government seeks for enabling legislation, the Dairy Industry Restructuring Act (DIRA).

The Government is expected to release a discussion paper on potential DIRA changes later this month.

Three possible time frames for launch of the share-trading dates are October-December 2011, April-May 2012 or October-December 2012, Fonterra said today.

This week it is staging 50 farmer meetings to update shareholders on progress in the restructuring.

Capital structure changes approved by farmer-shareholders in 2009 allowed farmers to hold cooperative shares up to 120 percent of their milk production.

Further changes endorsed in June 2010 set the scene for Fonterra to transfer the "redemption risk" -- so that farmers trade in unwanted shares at a market value set by trading among themselves. Eventually they are expected to be able to hold shares up to 200 percent of their annual milk production.

During the current season, farmer-shareholders applied for $61 million of additional Fonterra shares, lifting the total number of "dry" shares to 6 percent of shares on issue -- beyond those farmers are required to hold to back their recent or expected milk production.

More than 70 percent, or 7500, of Fonterra's 10,500 farmer-shareholders now hold dry shares, and trading among farmers is expected to create a market for trading those shares.

Farmers will be able to place some of their shares with a new Fonterra shareholders' fund, which would pay for the rights to dividends and the gain or loss from any change in the market value of those shares. To raise that money, the fund will issue units to outside investors, giving the public and institutions an investment linked to Fonterra's financial performance, without farmers surrendering control of their voting shares.

Fonterra chairman Sir Henry van der Heyden said trading among farmers was "vital" to remove redemption risk -- the problem the cooperative faced in redeeming unwanted shares when a lot of farmers reduced production, such as during a drought, or diverted milk from the cooperative.

Trading among farmers will require at least 50 percent support from the Shareholders' Council, Sir Henry said.

Fonterra has forecast a bonanza payout for the current dairy season of $7/kg-$7.10/kg of milksolids. The payout is expected to represent a $9 billion boost to the economy, with 10,463 farmers receiving an average gross payout of $820,000.