Fonterra Shareholders’ Fund unitholders, among them many Fonterra dairy farmers, have suffered a considerable equity loss through market uncertainty over Fonterra’s capital restructuring.
Inaugural and outgoing fund management company chair John Shewan told unitholders at the 2022 annual meeting that Fonterra should have bought out the fund.
After a decade of governance Shewan parted ways with Fonterra, firing a few broadsides and repeating his view from the previous AGM that the fund had outlived its usefulness.
He said the Fonterra Shareholders’ Fund (FSF) unit price had fallen by 20% from the beginning of August 2021, the start of Fonterra’s 2022 financial year, to the annual meeting day on which he was speaking, November 14, 2022.
He said he considers the main influence to be continuing uncertainty over Fonterra’s capital structure, plus volatility in international capital markets.
In April and May this year the drop in the FSF unit price was accentuated by the release of the report by the financial and economic consulting firm Castalia, which contained assertions that Fonterra did not agree with.
“The Castalia report asserted that protections for a fair milk price will be eroded and that the capital restructure will cause the milk price to increase,” Shewan said.
Fonterra strongly disagreed with the Castalia valuations of shares and units and that capital structure changes would increase the milk price.
The unit price was $4.60 on the May 2021 day before Fonterra announced its capital restructure intentions and had fallen to $3.03 last week.
The market capitalisation of the fund had dropped $93 million, or 22% in the past year.
This uncertainty looks likely to affect the unit price through restructuring in 2023, Shewan said.
The directors of the FSF management company remain of the view that Fonterra should have bought back the fund as part of the capital restructure.
“I believe that the sequence of events and adverse impact on unit price since the May 2021 announcements shows very clearly why our concerns were entirely justified,” he said.
Fonterra chair Peter McBride addressed the annual meeting of disgruntled unit holders and made no reference to Shewan’s continued criticism.
He emphasised the good financial results for Fonterra in FY22 and the prospects for some capital to be returned to shareholders and unitholders in FY24.
The unstated message was that unitholders should stay invested for Fonterra’s recovery, which would lift the share market prices of supply shares and fund units.
