FrieslandCampina opens the door for investors

Although FrieslandCampina says it is basically in good shape, the cooperative dairy group wants to borrow about €300 million in the free market. The financial buffers are too small to absorb setbacks. 

The intention is that perpetual listed subordinated bonds will be issued. This resembles the current member bonds, but the new bond loan can fluctuate in value, while the current member bonds cannot. The time of launch and interest rate conditions are not yet known. The Members' Council approved this proposal from the company at the end of December.

Such constructions are especially interesting for institutional investors, such as banks and pension funds. The planned issue of bonds is not a prelude to a public stock exchange listing, emphasizes FrieslandCampina. 

Trading in member bonds is booming
In a flyer distributed among member dairy farmers, FrieslandCampina gives a number of reasons why extra liquidity is needed. In recent years, for example, due to the aging of member dairy farmers and switchers, more member bonds have been offered than sold. More than half of the freely tradable member bonds are now in the hands of former members.

Rabobank's liquidity facility of up to €50 million will be filled by the next trading day in February 2020. FrieslandCampina has already indicated that it will redeem €72 million worth of member bonds in order to keep the internal market liquid. This is at the expense of equity.

FrieslandCampina is striving for a structural solution to this 'problem' in the future. One solution that is being considered is to enlarge the internal market with persons who are allowed to hold member bonds.

Declining profit
FrieslandCampina is also struggling with declining income. Profit is still being made, but much less than before. The devaluation of Nigerian profits, for example, is playing tricks on the dairy group. Profitability in China is also structurally lower. In addition, investments have been made in recent years in additional processing capacity, which, as can be read, places a large claim on the company's capital.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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