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

 

Gordon Campbell: On Tiwai Point (And Saying “No” In Greece)

Its hard to see how Rio Tinto’s one month delay in announcing its intentions about the Tiwai Point aluminium smelter is a good sign for (a) the jobs of the workers affected or (b) for the New Zealand taxpayer. More>>

ALSO:

Half Empty: Dairy Product Prices Extend Slide To Six-Year Low

Dairy product prices continued their slide, paced by whole milk power, in the latest GlobalDairyTrade auction, weakening to the lowest level in six years. More>>

ALSO:

Copper Broadband: Regulator Set To Keep Chorus Pricing Largely Unchanged

The Commerce Commission looks likely to settle on a price close to its original decision on what telecommunications network operator Chorus can charge its customers, though it probably won’t backdate any update. More>>

ALSO:

Lower Levy For Safer Cars: ACC Backtracks On Safety Assessments

Dog and Lemon: “The ACC has based the entire levy system on a set of badly flawed data from Monash University. This Monash data is riddled with errors and false assumptions; that’s the real reason for the multiple mistakes in setting ACC levies.” More>>

ALSO:

Fast Track: TPP Negotiations Set To Accelerate, Groser Says

Negotiations for the Trans-Pacific Partnership will accelerate in July, with New Zealand officials working to stitch up a deal by the month's end, according to Trade Minister Tim Groser. More>>

ALSO:

Floods: Initial Assessment Of Economic Impact

Authorities around the region have compiled an initial impact assessment for the Ministry of Civil Defence, putting the estimated cost of flood recovery at around $120 million... this early estimate includes social, built, and economic costs to business, but doesn’t include costs to the rural sector. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news