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Fonterra farmers holding back on selling dividend rights into new fund

Friday 23rd November 2012

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Just 260 of Fonterra Cooperative Group's farmer shareholders holding 5.5 million shares in the dairy exporter have sold their dividend rights into the shareholders' fund to be listed next Friday, with many waiting to see how it operates before taking the plunge.

That represents about 0.4 percent of Fonterra's shares on issue, and means the cooperative will have to issue shares to make up the shortfall. The fund aims to raise up to $525 million to cover the dairy exporter's redemption risk in weak milking seasons, and offers outside investors exposure to up to 7 percent of Fonterra's equity without any voting rights.

"It is clear that we have seen limited interest from farmers at this time," chief executive Theo Spierings said in a statement. "We're hearing from our farmer shareholders that a number of them are likely to wait and see how the units trade before deciding to sell economic rights of some of their shares into the fund."

The bookbuild to set the price for the fund will be held next week, and has attracted international interest as investors look to piggyback on Fonterra's expanding footprint in developing nations with a growing hunger for high protein food.

Some 2,500 people applied for units in the fund under the priority 'Friends of Fonterra' offer, as did a further 260 Australian dairy farmers.

"It is another indication of the strong support we are getting from our farmers and staff for our strategy refresh, which sets our future direction for growth," Spierings said.

Fonterra will manage the number of shares and their dividend rights held by the arms-length fund, which will operate alongside a market which will allow farmer-shareholders to trade Fonterra shares among themselves.

Chief financial officer Jonathan Mason said the share issue for the fund would, at most, impact earnings per share by about one cent.

"We know interest rates are low at the moment and this may mean that not all farmers are looking for alternative sources of cash," Mason said. "Circumstances may change in the future and that's why we are looking to provide further opportunities for farmers to sell economic rights."

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