Fonterra fund loses $93m in value

The Fonterra Shareholders Fund, which gives investors access to the dairy company’s dividends, has lost $93 million in value over the past year and should have been bought out as part of its capital restructure, outgoing chairperson John Shewan told the fund’s annual meeting.

Shewan, who is stepping down following the meeting after a decade on the board, was reiterating comments he made at last year’s annual meeting that the fund had run its course. Fonterra is overhauling its capital structure to ensure it can compete for reduced milk supply in the future against rival processors who do not require farmers to buy shares.

The changes would bring in a more flexible shareholding structure for farmers, restrict their ability to trade farmer shares for units in the NZX-listed fund, and limit the size of the fund to ensure farmer control of the co-operative in the future.

‘‘The implementation of Fonterra’s new flexible shareholding capital structure has created uncertainty for unit holders and potential investors over what the impact might be on the unit price,’’ Shewan said.

He noted the unit price had declined from $4.60 immediately prior to Fonterra’s capital structure review announcement on May 5 last year to a closing price of $3.03 on Friday, despite Fonterra’s strong performance.

Its market capitalisation had slid 22% over the past year to $325m, a drop of $93m, he said.

‘‘How the implementation of Fonterra’s new capital structure might impact the unit price has played its part in subduing the price,’’ Shewan said.

‘‘In addition, the performance of the unit price this year has been impacted by the heightened volatility in equity markets and the lower valuation of equity markets both in New Zealand and overseas.

‘‘This reflects uncertainty driven by inflationary pressure, higher interest rates, geopolitical events and recessionary concerns.

‘‘Uncertainty may reduce as implementation of the new capital structure proceeds through 2023,’’ Shewan said.

‘‘However, the independent directors of the manager of the fund remain of the view that Fonterra should have bought the fund back as part of the capital restructure process.

‘‘I believe that the sequence of events and adverse impact on unit price since the May 2021 announcements shows very clearly why our concerns were entirely justified.’’

‘‘Fonterra should have bought the fund back.’’ John Shewan Fonterra Shareholders Fund outgoing chairperson