Five-year, fixed-rate bond to trade on the NZX debt capital market.
Fonterra has launched a five-year, fixed-rate bond issue for $250 million with the ability to accept up to $100m oversubscription at its discretion.
These will be unsubordinated, unsecured bonds with an indicative margin rate between 0.85 to 0.95% annually.
The closure date for the offer is November 1, after which the actual margin and the interest rate on the bonds will be announced, and they will be issued on November 8.
They will trade on the NZX debt capital market under the ticker FCG060.
Asked why it sought debt capital by way of bonds versus bank finance, Fonterra said debt capital was preferred for core requirements and bank loans for seasonal debt.
FCG050 for $100m is maturing in mid-November and part of the proceeds from FCG060 will be used for repayment.
“Bonds form part of our diversified sources of funding and are also used to enable Fonterra to maintain a prudent refinancing profile,” said group treasurer Mark Woodward.
At the July 31 balance date Fonterra had total debt of $2.6 billion, down from $3.2bn the year before, of which 60% was bank finance and 40% debt capital from markets around the world and maturity dates out to 2030.
FCG050 and FCG060 are called “vanilla” bonds in market jargon because they don’t have special features.
They might be better described as “blue chip” investments. Although the bonds are unsecured, Fonterra has with great care explained its financial soundness with balance sheet resilience and cash flow flexibility.
This includes the amount and timing of payments to farmers for their milk under the advance rate system, called an effective subordination.
Net debt has halved over the past three financial years, a period which Fonterra called a “step change in performance”.
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