19 November 2007
Standard And Poor’s Show Folly Of Fonterra Float
The recent decision by Standard and Poor’s to revise Fonterra’s outlook from ‘stable’ to ‘negative’ following the
release of the Fonterra board’s preferred option for capital restructure highlights for farmers the serious implications
of moves to restructure the company.
“While reaffirming Fonterra’s excellent credit rating of ‘A+/A-1’, Standard and Poor’s has forewarned that the proposed
restructure option could result in a lower rating if implemented. They argue that banks will no longer have the comfort
and credit protection of 11,000 farmers backing any debt, as is currently the case,” said Mr Woolerton.
“In the present co-operative arrangement, all profits are reflected in the milk price. This will no longer be the case
under the proposed restructuring, with profits being extracted from the milk price to allow a return to be passed on to
investors. They believe that such changes will further deteriorate Fonterra’s credit rating.
“The reaffirmation of Fonterra’s high credit rating by Standard and Poor’s also further supports New Zealand First’s
belief that Fonterra should look to borrow to fund future expansion.
“With one of the best credit ratings of any business, Fonterra can expand as they wish without selling any of the
company. After all, if the expansion plans do not stack up with the favourable interest rates Fonterra can access, they
shouldn’t be doing the deal.
“Fonterra is already a world player and can provide greater benefits to farmers and the country through joint-ventures
and borrowing, rather than flogging bits of itself off,” said Mr Woolerton.
ENDS