UPDATE 1-NZ's Fonterra dairy units surge on debut

Thu Nov 29, 2012 7:54pm EST

(Recasts, updates price, quotes)

WELLINGTON Nov 30 (Reuters) - New Zealand's Fonterra Shareholders Fund surged on debut on Friday, trading as much as 22 percent above its issue price, as investors chased exposure to the world's largest dairy exporter.

Units in the fund traded as high as NZ$6.71 compared with the issue price of NZ$5.50, with nearly 14 million units, close to 15 percent of the fund changing hands. It last traded at NZ$6.66.

The fund, which is based on the dividends from Fonterra shares, raised NZ$525 million ($430 million) to help the the farmer-owned co-operative to bolster its balance sheet and fund expansion plans.

"Some will have bought this for its yield at around 5 percent, but others will be buying for its exposure to Asian growth, and for exposure to the agri-food chain," said Andrew Bascand of Harbour Asset Management, which had bought on behalf of clients.

The shareholders' fund is based on Fonterra's dividends, which are influenced by global dairy prices and the performance of the company's consumer business, and has forecast a dividend of 32 cents a share in the current season.

The fund is part of a wider scheme to boost Fonterra's capital structure and free up cash as it pursues ambitious plans to expand through Asia, particularly China, where it is setting up dairy farms.

ASIAN EXPANSION

Fonterra, which competes with food giants such as Nestle and Danone, produced about 17 billion litres of milk in 2011/12 in New Zealand and around another 2 billion litres in overseas ventures, including in Australia and Chile.

The firm controls around 21 percent of the world's dairy exports and is spending around NZ$100 million to develop two new large scale dairy farms in China as part of a plan for an integrated milk business.

It has also moved to increase processing and expand distribution channels through Asia to take advantage of the growth in demand from burgeoning middle classes, where it expects demand to outstrip supply by 2020.

"Fonterra is well placed to meet rising global demand for dairy, with 72 percent of our...sales volumes and 46 percent of our regional business revenues coming from emerging market regions in the last financial year," said chief executive Theo Spierings.

The United Nations's Food and Agriculture Organisation has said the world needs to boost food output by 70 percent by 2050 to meet demand, with highly populated countries such as China, seeking sources at home and abroad to guarantee food security.

This has also seen Chinese companies invest in New Zealand farms and take a cornerstone stake in one of the country's largest rural services firms, PGG Wrightson Ltd.

Units in the new Fonterra fund do not come with voting rights, ensuring that ownership of the company remains with its 10,500 farmer members.

Separately, a closed market allowing Fonterra farmer-shareholders to trade their shares among themselves also started operation on Friday. ($1=NZ$1.22) (Reporting by Gyles Beckford; Editing by Richard Pullin)

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