Fonterra units rocket up 22% in NZX debut

UPDATED:

Fonterra Shareholders' Fund units soared as much as 22% on their NZX debut as investors leap at the chance to get access to the dairy exporters' earnings stream, though no farmers used the scheme to trade their own shares.

The units jumped as high as $6.71 from the $5.50 offer price set in this week's book-build in a flurry of trading. The price settled back to $6.60, with 12.6 million units, or about 13% of the fund, changing hands.

"Today we have permanent capital based on a true market price," Fonterra chief executive Theo Spierings says. "We have seen that true market price just now."

None of Fonterra's farmer shareholders used the mechanism to trade shares among themselves.

"Farmers will watch and see what happens. They have got a lot of time to make their decisions," says chairman elect John Wilson, who confirmed he hasn't personally taken up units. Fonterra plans to make "another couple of offers to farmers in the new year" of shares. The details cannot be made public yet.

Mr Wilson says he expects the units "will settle down over time and end up trading on their fundamentals". But in the first flush of trading "we know there's been so much demand".

Fonterra chief financial officer Jonathan Mason says the new opportunities will let farmers trade their production shares, as spelled out in the prospectus, though the board has yet to decide on the detail.

Given the strong demand for the units, Mr Mason says Fonterra will consider a retail bond offer as existing debt matures.

"Another retail bond is clearly one of the ideas we would look at as maturities come up", though he noted that in recent months they have offered more attractive interest rates.

Some 58% of the $525 million of units were allocated to New Zealand retail and institutional investors and the class of investors known as Friends of Fonterra, which includes Australia's Bonlac. The rest were sold to foreign institutions.

The change will substantially reduce the share redemption risk on Fonterra's own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

While the fund attracted massive demand, the pricing was deemed too rich for research firm Morningstar, which last week gave a "do not subscribe" recommendation.

Morningstar said investors would be better served waiting for the units to list and consider buying in if the price fell to $4.95.

(BusinessDesk)

12.15pm:

Units in the Fonterra Shareholders' Fund jumped 21% on their debut as investors clamoured to get more exposure to the dairy co-operative's earnings after a $525 million initial public offer.

The fund, which grants holders access to Fonterra's dividends but not voting rights, opened at $6.66, after the issue price was set at $5.50 after a bookbuild, the top end of the indicative range.

It recently traded at $6.70, with some 3.9 million units changing hands in the first few minutes of trading.

The units climbed on heavy volumes even as this story was being published.

Some 58% of the units were allocated to New Zealand retail and institutional investors and the class of investors known as Friends of Fonterra, which includes Australia's Bonlac.

The rest were sold to foreign institutions.

The change will substantially reduce the share redemption risk on Fonterra's own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

No farmer shareholders used the new facilities to trade Fonterra stock among themselves.

While the fund attracted massive demand, the pricing was deemed too rich for research firm, Morningstar, which last week gave a "do not subscribe" recommendation.

Morningstar said investors would be better served waiting for the units to list and consider buying in if the price fell to $4.95.

(BusinessDesk)