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Advice to Fonterra capital notes recipients

News release
For immediate release

12 July 2005

Advice to Fonterra capital notes recipients:
Understand your options before you sell

Farmers who have been issued with capital notes by Fonterra yesterday (July 11) are being advised to look at other options before selling them back to the company.

Fonterra issues the notes each July primarily to shareholders who stop or reduce their supplier involvement with the company.

The interest rate on the capital notes is reset each year at a margin of 1.7% above the one-year Government stock rate, based on Fonterra’s A+ credit rating. The interest rate was reset today at 7.90% for the next 12-month period to July 10 2006.

Fonterra issued the first tranche of notes in 2001 with 200 million capital notes placed to investors. Subsequent issues by Fonterra to shareholders have taken the total amount on issue to 653,043,755 securities.

The issue price is $1.0611.

New noteholders can either hold the notes and receive the quarterly interest payments or, if they want to obtain cash, they can sell the notes. There are two alternatives for new noteholders wanting to sell, firstly, selling the notes through the New Zealand Exchange’s debt market (NZDX), or secondly, selling to Fonterra, via a capital notes purchase facility at the issue price plus any accrued interest.

The difference is that trading through the NZDX may enable noteholders to exit at a better price as this market has a much larger number of active buyers and sellers on any given day. The notes are one of the most actively traded debt securities listed on the NZDX.

In view of this, NZX market participant ABN AMRO Craigs advises those shareholders who have received their capital notes to seek advice before accepting any Fonterra offer.

Last year, the price of the notes traded on the NZDX was generally above that obtained by noteholders selling into the capital notes purchase facility.
After adjusting for broker costs, most Fonterra Capital Note holders were better off selling the notes on the market.

The decision to sell or to hold the notes will very much depend on individual circumstances and ABN AMRO Craigs suggests before making any decision, noteholders discuss their options with an NZX advisor.

“Our strength is in being able to offer independent advice, including comparative pricing, to ensure the noteholder has all the necessary information to make the best decision,” says ABN AMRO Craigs NZX Advisor Andrew McLean.
“If noteholders want to sell their notes, we recommend they assess selling them through a NZX market participant as an alternative to the Capital Notes Purchase Facility,” he says.

ENDS

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