{"id":5354,"date":"2021-08-02T00:00:00","date_gmt":"2021-08-01T12:00:00","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/fonterra-shareholders-fund-future-uncertain\/"},"modified":"2022-06-10T22:09:46","modified_gmt":"2022-06-10T10:09:46","slug":"fonterra-shareholders-fund-future-uncertain","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/news\/fonterra-shareholders-fund-future-uncertain\/","title":{"rendered":"Fonterra Shareholders\u2019 Fund future uncertain"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes<\/span><\/span>

Fonterra's foray into listing might end up costing its shareholders close to $500 million, but the Fonterra Shareholders\u2019 Fund may well slip off the books with little or no fanfare.<\/p>\n

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\u201cThe unit trust has been marginalised since day one in some respects. The experience has been quite poor for unitholders all the way through,\u201d senior Harbour Asset Management research analyst Oyvinn Rimer says.<\/p>\n

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He doesn\u2019t think there are many investors in the fund left to care.<\/p>\n

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\u201cWe own a very small number in our passive fund, which is an index-tracking fund that has to own them, but in an active sense, we don\u2019t,\u201d he says.<\/p>\n

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\u201cIn hindsight, it probably should have been wound up shortly after listing.\u201d<\/p>\n

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The fund was created in 2012 to both manage redemption risk for the co-operative and be a vehicle that gave outside investors some exposure to the dairy sector.<\/p>\n

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The rewards haven\u2019t been great.<\/p>\n

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The units were first sold at $5.50 in 2012, when Fonterra raised $525 million from their sale, and last traded at $3.73. The fund is currently trading but Fonterra put a temporary freeze when it announced the proposal. The units have fallen from $4.56 just before the proposal was announced.\u00a0<\/p>\n

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Since its launch, it has paid roughly 30 cents a year in dividends, including two lean years where Fonterra\u2019s debt repayments were the priority.<\/p>\n

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In May, Fonterra\u2019s board kicked off consultation on a new proposed capital structure that would see the fund capped or killed as it looks to protect itself from flat or declining milk supply and to ensure farmer ownership.\u00a0<\/p>\n

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Fonterra recently unveiled some possible changes but there was no further clarity on the future of the fund.<\/p>\n

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\u201cWe still have not made a decision or landed in terms of the future of the fund,\u201d chairperson Peter McBride told reporters at a briefing. The future of the cooperative \u201cis the priority at the moment,\u201d he said.<\/p>\n

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However, Rimer says any buyback \u2013 which would have to be approved by at least 75% of unitholders entitled to vote \u2013 may not be stellar.<\/p>\n

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The current market capitalisation of the fund is $401.6m.<\/p>\n

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Fonterra has argued keeping the fund operating as is could potentially cost billions as it may be forced into repeatedly buying back shares if certain levels are breached.<\/p>\n

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\u201cIt doesn\u2019t sound like there is any willingness to pay a premium to unitholders to close it down,\u201d Rimer said.<\/p>\n

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While there\u2019s no final decision , he says \u201cthe writing is on the wall\u201d.<\/p>\n

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NZ Shareholders\u2019 Association chief executive Oliver Mander says the association hasn\u2019t yet formed a view on the proposal given that the proposal itself hasn\u2019t been finalised.<\/p>\n

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However, he says there had always been an inherent conflict of interest between the unitholders and the supplier shareholders, he said.<\/p>\n

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Jarden\u2019s head of research Arie Dekker says \u201cit was very clear at inception that there would be limitations associated with investing in an FSF unit \u2013 particularly there was no voting interest in Fonterra\u2019s governance while the fund was also set up with a number of protections around controlling the fund size\u201d.<\/p>\n

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Data from the annual reports show Fonterra spent about $1.7 million on directors\u2019 fees for the fund\u2019s manager in the nine years to June 30, 2020. It also paid the fund\u2019s running costs.\u00a0<\/p>\n

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The FSF Management Company, the manager of the Fonterra Shareholders\u2019 Fund, hasn\u2019t responded aggressively to the idea that the fund might be wound up.<\/p>\n

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It says its capital review subcommittee, which comprises its independent directors, will continue to discuss the capital structure proposals in confidence with Fonterra and with advisers.<\/p>\n

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It also reiterated \u201cit is not able to provide unitholders with any assurance about the price or liquidity of trading in the fund as these are matters the manager does not control or influence.\u201d<\/p>\n

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Mander says removing the fund will limit investment options in the dairy sector.<\/p>\n

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Fonterra argued that the milk supply issue is now a bigger risk and investors can turn to the bonds for exposure.<\/p>\n

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However, Mander says bonds are \u201ca totally different investment profile and not what investors are looking for\u201d.<\/p>\n

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BusinessDesk<\/p>\n","protected":false},"excerpt":{"rendered":"Fonterra’s foray into listing might end up costing its shareholders close to $500 million, but the Fonterra Shareholders\u2019 Fund may well slip off the books with little or no fanfare.\n\u201cThe unit trust has been marginalised since day one in some respects. The experience has been quite poor for unitholders all the way through,\u201d senior Harbour Asset Management research analyst Oyvinn Rimer says.\nHe doesn\u2019t think there are many investors in the fund left to care.\n","protected":false},"author":21,"featured_media":5355,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[3],"tags":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t