The Fonterra Shareholders Fund IPO on the New Zealand
stock exchange (NZSX) and Australian stock exchange (ASX) was
linked with the debut of the Fonterra Shareholders'
Market in a transaction that could foreshadow initial
public offerings (IPOs) by similar co-operatives. Heres
Fonterra is New Zealands largest dairy co-operative.
Suppliers to the company must also be shareholders, but the
company wanted a solution in which outside investors could
receive economic benefits but could not become shareholders.
Its unique corporate structure necessitated a bespoke
innovative structure for the Fonterra Shareholders Fund
IPO and the Fonterra Shareholders Market.
The transaction represents the largest IPO out of Australia and
New Zealand this year and required close cooperation with
Russell McVeaghs Graeme Quigley, who represented
Fonterra, explained that the structure incorporated two linked
elements: the Fonterra Shareholders Market the
'private' market created for Fonterra shareholders to trade
shares and the
Fonterra Shareholders Fund.
The Fonterra Shareholders Market is quite unique in
New Zealand terms," he said. "The process for its establishment
was similar to setting up a new exchange, with the same
Bell Gully partner James Gibson, who advised joint lead
managers and bookrunners Deutsche Bank,
Craigs Investment Partners, Goldman Sachs and UBS said that
the objective of the deal was to move the capital redemption
risk for Fonterra. Farmers in the Fonterra co-operative are
required to hold a certain number of co-operative shares in
Fonterra for each kilogram of milk solids supplied each year to
The transaction reduces the risk that Fonterra would have to
use large amounts of capital each year to redeem co-operative
shares from farmers when farmers milk production dropped,
or when farms ceased being dairy farms.
the deal objective involved three key elements. Amendments were
made to relevant legislation and Fonterras constitution
to remove redemption obligations. Constraints were also placed
on farmers trading Fonterra shares between
resulted in the creation of a trading market the
Fonterra Shareholders Market on the NZSX for
Fonterra shares that allowed farmers to trade Fonterra shares
was a NZ$500 million public offer of units in a unit trust,
listed on both NZSX and ASX. These units were backed by
economic rights attaching to a pool of Fonterra shares, thereby
giving institutions and the general public the ability to
obtain an investment that has exposure to Fonterra.
But it is important to note that investors into the Fonterra
Shareholders Fund lack voting rights.
Quigley said on one level, the fund was not unusual in the
sense that its a unit trust with units listed on the NZX.
"There are a number of other unit trusts listed on the NZX, but
the terms of this unit trust are highly customised," he said.
"The key feature is that each unit is designed to pass through
to the unit-holder the same economic benefits as would be
received by a Fonterra shareholder."
Farmers and Fonterra can exchange their Fonterra shares for
units and vice versa.
Moreover, the structure also required the creation of the role
of a market maker, or 'registered volume provider', which is a
It is charged with providing enhanced liquidity to the
shares traded on the Fonterra Shareholders' Market and to
actively trade the shares," said Quigley. "In New Zealand,
there are no market markers in any other stock."
This was a unique structure dealing with a relatively unique
redemption risk issue.
Nonetheless, where such a redemption risk issue exists in other
cooperatives, Gibson expected those co-operatives to have a
close look at the structure off the back of this transaction.
"A lot of planning and thought by Fonterra and its advisors
went into this innovative and complex structure," he
Gibson was optimistic the deal would have a positive impact on
New Zealand capital markets. To see this transaction get away,
and get away well oversubscribed and then the units
trading at a premium is a very good result for the New
Zealand capital markets and hopefully will give other issuers
confidence to follow suit, he said.
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