14 Oct 2015

Fonterra's credit rating cut by Standard and Poor's

8:43 pm on 14 October 2015

Ratings agency Standard and Poor's (S&P) has cut Fonterra's credit rating and is warning of more volatility ahead for the dairy industry.

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Photo: RNZ

S&P has downgraded the co-operative's rating from A to A-, making it more expensive for the dairy processor and exporter to borrow.

The agency said the co-operative's financial balance sheet had worsened over the past two years, after taking on more debt to build dairy plants and buy a stake in China's Beingmate.

S&P analyst Brenda Wardlaw said there was a risk of more volatility to come.

"We certainly view the rating pick-up in dairy prices as a positive sign for the industry but the market is still exposed to potential volatility," she said.

"I think the last two years have really evidenced how that volatility can come through, moving from the very high spike in dairy price in 2014 to very low levels in 2015."

Fonterra said the downgrade would not have any impact on its forecast payout to farmers, or its strategy.

Waikato University agribusiness professor Jacqueline Rowarth, however, said the co-operative's credit rating had fallen from A+ to A- in just 13 months and that was not good for the country's farmers.

The co-operative is currently in the process of a business review, in which it is shaving 750 jobs to cut costs.

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