Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fonterra credit rating cut by S&P, Fitch affirms rating

Fonterra credit rating cut by S&P over Beingmate deal, Fitch affirms rating

By Paul McBeth

Aug. 29 (BusinessDesk) - Fonterra Cooperative Group has had its A+ credit rating cut one notch by Standard & Poor's over its investment in China's Beingmate Baby & Child Food, which the rating agency sees as a more aggressive push into the world's second biggest economy. Separately, Fitch Ratings affirmed its rating for the world's biggest dairy exporter.

S&P lowered Fonterra's long-term rating to A and affirmed the short-term rating at 1-1, retaining a stable outlook on both, it said in a statement. Fonterra is paying a premium to buy a fifth of Beingmate as part of a $615 million investment to drive its own brand of baby food sales into the world's most populous nation. The companies have entered into a joint venture, using Fonterra's Darnum plant in Victoria, Australia to manufacture the goods, and comes at the same time Fonterra announced a $555 million expansion in its domestic drying capacity.

"Fonterra's proposed sizeable shareholding in a commercial company operating in China indicates a financial risk appetite that is more aggressive than what we had factored into the previous A+ rating," credit analyst Brenda Wardlaw said in a report.

S&P said the scale of the acquisition, its reliance on dividends from the equity holding rather than having direct control over cash flows, higher short-term leverage to fund the transaction and the capital expenditure worsen Fonterra's credit quality to the A rating.

"The stable rating outlook reflects our view that the effective subordination of the company's payments to its supplier-shareholders remains entrenched within Fonterra's business model," Wardlaw said. "Implicit within the ratings is our expectation that future investments are unlikely to change the proportion of milk supplied from New Zealand materially."

S&P said any further debt-funded acquisitions may weigh on the credit rating.

Fonterra has been grappling with falling global dairy prices this year as stockpiling in China and increased international production take the steam out of the market, though it expects prices to bottom out this year or in early 2015. The dairy group this week affirmed its forecast payout to farmers at $6 per kilogram of milk solids, having cut it in July as global prices dropped.

In a separate statement, Fitch affirmed Fonterra's long-term issuer default rating of AA- and the short-term rating of F1+, both with a stable outlook, because of its scale, the defensive characteristics of its ingredients business, its financial flexibility, and margin protection offered by its full integration.

Fitch was more positive about the Beingmate deal, saying it "expects positive stream returns to support Fonterra's operating margin," though forecast cash returns were more uncertain due to the growth focus of the Chinese firm and tax and capital repatriation complexities from doing business in China.

The ratings announcements came after the close of trading on the NZX and units of the Fonterra Shareholders' Fund, which gives investors exposure to Fonterra's earnings stream, rose 0.2 percent to $6.17, and have gained 6.2 percent this year. The units are rated an average 'hold' based on seven analyst recommendations compiled by Reuters, with a median price target of $6.58.

The units are also listed on the ASX, and were down 1.3 percent to A$5.50.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Tax: GST Threshold For Online Purchases Won't Lower Before 2018

The government wants to lower the threshold on online purchases which qualify for GST from mid-2018, but says more work is needed and there will be no change without public consultation. More>>

ALSO:

North Canterbury: Government Extends Drought Classification

The government has extended a drought classification for the eastern South Island until the end of the year, meaning the area will have officially been in drought for almost two years, the longest period for such a category. More>>

ALSO:

Negotiations Fail: Christchurch Convention Centre Build To Proceed Without PCNZ

After protracted negotiations, the government has ditched the construction consortium it picked to build Christchurch's replacement convention centre, which it now anticipates delivering at least two years behind the original schedule. More>>

ALSO:

Ruataniwha: Greenpeace Launches Legal Challenge Against $1b Dam Plan

Greenpeace NZ is launching a legal challenge against a controversial plan to build a dam that’s set to cost close to $1 billion and will pollute a region’s rivers. More>>

ALSO:

Inequality: Top 10% Of Housholds Have Half Of Total Net Worth

The average New Zealand household was worth $289,000 in the year to June 2015, Statistics New Zealand said today. However wealth was not evenly distributed, with the top 10 percent accounting for around half of total wealth. In contrast, the bottom 40 percent held 3 percent of total wealth. More>>

ALSO:

What Winter? Temperature Records Set For June 20-22

The days around the winter soltice produced a number of notably warm tempertaures. More>>

Conservation Deal: New Kākāpō Recovery Partnership Welcomed

Conservation Minister Maggie Barry says the new kakapo recovery partnership between DOC and Meridian Energy is great news for efforts to save one of New Zealand’s most beloved birds. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news