Fonterra is making headway with its high debt levels, making gains to the tune of $270 million in the last financial year mostly as a result of gains from milk production.
New Zealand Farmers Weekly editor Tim Fulton says the dairy co-operative is in a much better position than it was last year when milk production was hit by drought and capital fell away.
"That situation where they haemorrhaged about $700 million the year before really speaks for the whole capital problem Fonterra perceives it has - the risk that they could have a lot of shareholders having to redeem their shares obviously affects the debt balance of the company," Fulton says.
Fonterra is currently looking at capital restructure to bring debt back to a comfortable level, with Fonterra's total core debt reported by New Zealand Farmers Weekly to be $6.5 billion at the year end 2008.
Fulton says Fonterra uses an indicator that $100 million of capital can change the debt to equity level by about 1%.
"That's an awful lot of money you have to rake in to change that figure slightly," says Fulton.
He says Fonterra has a debt to debt plus equity band above 45-55%, and has been well above this band for some time.
Using Fonterra's $100 million to 1% indicator, New Zealand Farmers Weekly says the co-operative would have to acquire equity or reduce debt by $1 billion to bring the ratio closer to 50%.
Though few details are known about Fonterra's capital restructure, it will include growing capital and possibly listing on the stock exchange.
It is understood that the restructure process will be carried out in up to four stages, and that farmers may cast their first vote at Fonterra's meeting in November.
