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Notes buy-back to reduce costs for Fonterra

26 April 2006

Notes buy-back to reduce costs for Fonterra

In a move to reduce Fonterra's overall debt financing costs, the company plans to redeem a large portion of the capital notes it has on issue with the NZDX.

Fonterra will redeem capital notes owned by those people who (on the record date) hold capital notes with a face value of $83,300 or less and will redeem 94 percent of capital notes for people holding more than $83,300.

The company has today issued an election notice to give effect to this and based on the last 10 days trading activities it has announced a redemption price of $1.04833. A copy of the election notice to redeem has been sent to NZX and will be mailed to Noteholders shortly. The record date for the redemption is Friday 30 June, 2006 and the redemption will occur on July 10, 2006. Capital notes held by Fonterra and its subsidiaries will not be redeemed.

Fonterra Co-operative Group Chief Financial Officer Guy Cowan says the solid trading and credit history Fonterra had built up since it was founded meant other, cheaper forms of financing were now available to the company.

"This is about maximising the returns to our shareholders. The notes were initially issued and priced at Fonterra's inception, and reflected the information the market had at the time. However, there are now better financing alternatives available to Fonterra," Mr Cowan said.

Mr Cowan said the redemption would be financed through Fonterra's existing funding facilities. It would not affect the company's debt to debt-plus-equity ratio, and he expected the company's AA- credit rating to be unchanged.

Fonterra has previously used capital notes, which are traded on the NZDX, to pay out shareholders either leaving the co-operative or reducing supply, who are consequently obliged to redeem all or some of their Fair Value Shares.

At the end of the current season, however, shareholders will be paid cash for any changes to their shareholding, except for ceasing shareholders surrendering Supply Redemption Rights (SRRs), who will receive Capital Notes for their SRRs in line with Fonterra's constitutional requirements.

Mr Cowan said while the company would be paying cash and not capital notes for shares this season, it would still be able to pay out shareholders with either capital notes or cash in future, depending on which option was better at the time.

"We intend to retain the ability to issue capital notes, and so there will still be on issue notes well in excess of the minimum market value required by the NZDX listing rules. This should ensure sufficient liquidity in the market," he said.

Mr Cowan also said he believed redeeming notes in the way Fonterra planned to do it would ensure an adequate spread of holders was maintained.

- ENDS -

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