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Fonterra raises 'dim sum' funds for China expansion

By RJ Whitehead , 21-Jan-2014

New Zealand dairy major Fonterra has raised RMB1.25bn (US$210m) through a five-year offshore “dim sum” bond issue to to repay debt and expand its operations in China. 

The company’s chief financial officer, Lukas Paravicini, said part of funds raised by the issue—its second such currency-denominated bond—would be used to develop specific business areas.

Issue over-subscribed

According to the New Zealand Herald, the bonds will pay an annual interest rate of 3.6%, and their issue was “significantly over-subscribed”, with strong support from Asia.

Along with refinancing some of our existing China operations, we will also be using funds to support further growth in this market. This will include the further expansion of our consumer, foodservice and farming operations,” Paravincini said in a statement.

The first time Fonterra entered the dim sum bond market was in 2011 when it became the first Australasian company to tap into the dim sum market. That year, the release of RMB300m (US$49.6m) of three-year bonds was six-times oversubscribed and payed annual interest of 1.1%.

China integration

According to Fonterra’s regional president for Greater China and India, Kelvin Wickham, the co-operative has set out to drive growth in volume and value as it develops its integrated business model in China.

Last year we successfully launched our premium milk brand, Anchor, and also launched a new paediatric formula product specially tailored for the China market under the Anmum brand,” Wickham said, adding that imports of Fonterra’s established foodservices and ingredients business were expected to see further growth.

At the same time China is expected to see a continued gap between the demand and supply of raw milk so our farming business will continue to build supplies of quality raw milk to meet local consumer demand.

The renminbi bond issue will support the growth of our whole business, and in particular our consumer brands business which are a key focus for growth given it is at an earlier stage of development.

Paravicini added:“The dim sum bond market has continued to develop strongly over recent years and provides an attractive opportunity for us to raise long term renminbi funding that matches our businesses in China. 

“As this funding market and our business in China develop further, it makes sense to seek a greater alignment between our treasury borrowing and our business activities,” he said.

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