Fonterra may sell more NZ bonds amid strong investor demand

Thursday 26th March 2009

Fonterra, the world�s biggest dairy products exporter, is considering a further sale of corporate bonds in the New Zealand market after investors clamored for its last offer in February.

The dairy cooperative sold $800 million of the 6-year bonds paying 7.75% last month, almost threes time more than it had initially planned to sell. Investors are being lured to corporate bonds for higher yields as deposit rates dwindle.

�We were really encouraged by that,� chief executive Andrew Ferrier said in an interview. �We will consider another kiwi issue. We�re evaluating it now.�

Last month�s sale, refinancing shorter-term funding, extended the average maturity of Fonterra�s debt to 4.7 years, giving the company a wider buffer to current turmoil in credit markets. Credit reporting company Dun & Bradstreet this week warned of the rise of �financial mercantilism,� where government�s tie aid to their banks with directives to restrict overseas lending in favour of their domestic markets.

�Traditionally we have not been (raising debt funding) in New Zealand because it has been cheaper overseas,� Ferrier said. �But the way lenders are shrinking back to their own markets, New Zealand has become a more attractive place to borrow.�

Corporate bond rates compare favorably with term deposits, where rates have dwindled with the cuts to the official cash rate. A two-year term deposit at ANZ Bank offers 3.5% for amounts up to $5,000, according to the depositrates.co.nz website.

By Jonathan Underhill

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