by Jonathan Underhill
The dairy cooperative sold $800 million of the 6-year bonds paying 7.75% last month, almost threes time more than it had initially planned to sell. Investors are being lured to corporate bonds for higher yields as deposit rates dwindle.
“We were really encouraged by that,” chief executive Andrew Ferrier said in an interview. “We will consider another kiwi issue. We’re evaluating it now.”
Last month’s sale, refinancing shorter-term funding, extended the average maturity of Fonterra’s debt to 4.7 years, giving the company a wider buffer to current turmoil in credit markets. Credit reporting company Dun & Bradstreet this week warned of the rise of “financial mercantilism,” where government’s tie aid to their banks with directives to restrict overseas lending in favour of their domestic markets.
“Traditionally we have not been (raising debt funding) in New Zealand because it has been cheaper overseas,” Ferrier said. “But the way lenders are shrinking back to their own markets, New Zealand has become a more attractive place to borrow.”
Corporate bond rates compare favorably with term deposits, where rates have dwindled with the cuts to the official cash rate. A two-year term deposit at ANZ Bank offers 3.5% for amounts up to $5,000, according to the depositrates.co.nz website.
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