(Adds comment, details)
SYDNEY/WELLINGTON Aug 29 Credit ratings agency
Standard and Poor's on Friday cut its long-term rating on dairy
co-operative Fonterra , citing risks involved
with the company's plans to take a stake in a Chinese baby food
and formula maker.
S&P cut its rating on the world's largest dairy exporter to
A from A+, and affirmed the A-1 short-term rating. The outlook
on the long-term rating is stable.
S&P also lowered the rating on Fonterra's subordinated notes
to A- from A, and the ratings on its Chinese renminbi notes to A
The downgrades follow Fonterra's announcement earlier this
week that it planned to take a stake up of to 20 percent in
China's Beingmate, as it expands into the country's
lucrative infant formula market.
The company said it would invest a total of about $514
million in the tie-up, which would be funded through debt.
"Fonterra's proposed sizable 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," S&P analysts said in a statement.
"The scale of the proposed acquisition; a reliance on
dividends from the equity holding, rather than having direct
control over cash flows; higher leverage in the short-term from
this transaction; and the capital expenditure, worsen Fonterra's
S&P said that Fonterra's rating may come under further
pressure if it took on more debt-funded investments,
particularly in higher-risk geographies.
Ratings agency Fitch reaffirmed its AA- rating on the
company, while also maintaining its "Stable" outlook.
(Reporting by Wayne Cole and Naomi Tajitsu; Editing by Clarence
Fernandez and Michael Perry)