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

 

Fonterra credit rating cut to A- by S&P on Beingmate debt

Fonterra credit rating cut to A- by S&P on Beingmate debt, peak capex, price volatility

By Jonathan Underhill

Oct. 14 (BusinessDesk) - Fonterra Cooperative Group's long-term credit rating was cut by Standard & Poor's, which said its peak capital expenditure and rising debt levels had coincided with a high level of volatility in the global dairy market in fiscal 2015, weakening its financial risk profile.

Fonterra's long-term rating was cut one notch to A-, while its short-term rating was lowered to A-2 from A-1. The outlook is stable.

The cooperative’s cash interest costs on funding rose $95 million to $427 million in the year ended July 31, reflecting advance payments to farmers, funding for the $755 million purchase of 18.8 percent of Shenzen-listed Beingmate Baby & Child Food Co, and its three-year, $2.1 billion investment programme to increase and update production capacity. Fonterra’s leverage has increased as a result, with the debt-to-equity ratio rising to 49.7 percent, from 42.3 percent last year.

"The downgrades reflect our view that Fonterra's financial risk profile has weakened in the past two years, as the company's peak capital expenditure and sizable debt funded acquisition coincided with a high level of volatility in the global dairy market," S&P said. While Fonterra has a high degree of financial flexibility in setting milk price forecasts, "the group's financial
flexibility late in the season was diminished due to the speed and magnitude of the drop in global dairy product prices, relative to the level of advance rate payments to its supplier shareholders."

This "resulted in a material increase in its working capital at balance date, which added to the already elevated debt levels from capital investment and acquisitions during the year," S&P said. "In addition, Fonterra's offer of a loan to suppliers in our view implies there may be limited headroom to lower the payout at the bottom of the global dairy product price cycle."

Fonterra said in a statement that the downgrade wouldn't affect its strategy or farmer shareholder payout.

"We are progressing well with our business transformation and this will further strengthen our financial position," said chief financial officer Lukas Paravicini. "Global dairy prices are also recovering, which is a positive development, particularly for our farmer shareholders."

Paravicini said Fonterra's current debt "is at expected levels for this stage of the investment cycle."

S&P said it acknowledged the recent recovery in dairy prices, and "together with reducing capital expenditure, better working capital flows, and likely transformation benefits should meaningfully improve the group's financial risk profile in the next one-to-two years." Still, S&P expects the group's financial risk profile to remain more consistent with the 'A-' rating in the next few years, particularly given the potential for further volatility in the global dairy market."

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

NZTA: Major New Zealand Upgrade Programme Projects Go To Tender

Two major New Zealand Upgrade Programme projects are beginning tenders for construction. The New Zealand Upgrade Programme is a $6.8 billion investment to get our cities moving, to save lives and boost productivity in growth areas. The first Auckland ... More>>

Reserve Bank: RBNZ Seeks To Preserve Benefits Of Cash

The Reserve Bank – Te Pūtea Matua is taking on a new role of steward of the cash system “to preserve the benefits of cash for all who need them”, Assistant Governor Christian Hawkesby told the Royal Numismatics Society of New Zealand annual conference ... More>>

ALSO:

Economy: Double-Dip Recession Next Year, But Housing Rolls On

New Zealand's economy is expected to slip back into recession early next year as delayed job losses, falling consumer spending, and the absence of international tourists bites into growth. More>>

ALSO:

Microsoft New Zealand: Microsoft Expands “Highway To A Hundred Unicorns” Initiative To Support Startups In Asia Pacific

New Zealand, 14 October 2020 – Today Microsoft for Startups launches the Highway to a Hundred Unicorns initiative in Asia Pacific to strengthen the region’s startup ecosystem. This follows the initiative’s success in India, where 56 startups were ... More>>

Fonterra: Farmers Taking Another Step Towards New Zealand’s Low Emissions Food Production

They’re hot off the press and intended to help take the heat out of climate change. Fonterra farmers are already among the world’s most sustainable producers of milk and now have an additional tool in their sustainability toolbox. Over the last few ... More>>

ALSO:

Electricity: New Zealand Remains In Top 10 For Energy Balance

The World Energy Council’s Energy Trilemma Index has become part of the energy dialogue both globally and in New Zealand. The Index illustrates the need for countries to balance energy security, energy equity and environmental sustainability. New Zealand ... More>>

ALSO:


Courts: Businessman Eric Watson Sentenced To A Four-Month Jail Term

New Zealand businessman Eric Watson has been sentenced to a four-month jail term in the UK for contempt of court, TVNZ reports. More>>

OECD: Area Employment Rate Falls By 4.0 Percentage Points, To 64.6% In Second Quarter Of 2020

The OECD area employment rate – the share of the working-age population with jobs – fell by 4.0 percentage points, to 64.6%, in the second quarter of 2020, its lowest level since the fourth quarter of 2010. Across the OECD area, 560 million persons ... More>>

Spark: Turns On 5G In Auckland And Offers A Glimpse Into The Future Of Smart Cities

Spark turned on 5G in downtown Auckland today and has partnered with Auckland Transport (AT) to showcase some of the latest in IoT (Internet of Things) technology and demonstrate what the future could look like for Auckland’s CBD with the power of 5G. 5G is ... More>>

Stats NZ: Monthly Migration Remains Low

Since the border closed in late-March 2020, net migration has averaged about 300 a month, Stats NZ said today. In the five months from April to August 2020, overall net migration was provisionally estimated at 1,700. This was made up of a net gain ... More>>

University of Canterbury: Proglacial Lakes Are Accelerating Glacier Ice Loss

Lake Tasman, New Zealand | 2016 | Photo: Dr Jenna Sutherland Meltwater lakes that form at glacier margins cause ice to recede much further and faster compared to glaciers that terminate on land, according to a new study. But the effects of these glacial ... More>>

ALSO:

Dairy: Fonterra Sells China Farms

Fonterra has agreed to sell its China farms for a total of $555 million (RMB 2.5 billion*1), after successfully developing the farms alongside local partners. Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited ... More>>

ALSO: