Brian Gaynor Blog

The disappointing response to Fonterra's capital raising has increased the prospect of a sharemarket listing in the next few years.

The company raised a net $263.4 million with contributions of $270.7 million minus redemptions of $7.3 million.

The outcome compared with the Silver Fern Farms capital raising as follows;

- Silver Fern Farms rised $22.2 million last year out of a target of $128 million for a success rate of 17.3%

- Fonterra raised $263.4 million out of a target of $1,162 million for a success rate of 22.7%.

Chairman Sir Henry van der Heyden put a positive spin on Fonterra's capital raising but the truth of the matter is that the response was disappointing. The company would have hoped to raise at least $400 million or a third of what it was after.

Sir Henry said that farmers will have another opportunity to buy shares in the middle of the year but if the company wants to be a success on the world scene it will have to raise more capital than farmers seem willing to subscribe. The days when companies could rely on debt funded expansion is over.

A large number of non-farming New Zealand interests would be interested in contributing  capital to Fonterra but they will be reluctant to do so unless there is a secondary market where shares can be traded and a true market value for these is established.

This is why a sharemarket listing for Fonterra is inevitable if farmer shareholders are unwilling to front up with more capital.