Do not underestimate the feel-good factor for finance markets of news last week of the massive oversubscription of Fonterra bonds.
That is the view of ABN Amro Craigs client adviser Peter McIntyre, who said the $300 million bond issue would also give the dairy company six years of working capital and time to strengthen its balance sheet.
He said it also sent a message that a good quality bond issue, backed by a business with a strong Standard and Poors credit rating and a business model that was easily understood, would be supported by the market.
Fonterra revealed late last week that New Zealand Stock Exchange and institutional investors had oversubscribed its $300 million bond issue by seeking $800 million in bonds at a time when financial markets have been under pressure.
"For the debt market it has been massive."
Mr McIntyre said the over-subscription was a huge vote of confidence by the corporate sector in Fonterra and the dairy industry.
Fonterra has been under close scrutiny, with demand and prices for dairy products falling which forced it to slash by a third its forecast milk payout to farmers this season.
Mr McIntyre said falling bank interest rates made the bond's 7.75% minimum coupon rate attractive.
If Fonterra had been a publicly listed company, Mr McIntyre said its share price would have risen on the back of the bond offer.
The bond offering was the largest since Rabobank raised $900 in October 2007 and would be followed by capital-raising offers from Contact Energy and New Zealand Post.
Because of the over-subscription, the issue would be scaled and bonds traded on the New Zealand Stock Exchange debt market, which would allow those who missed out on the initial offering to participate.
