By issuing the renminbi bonds, through Hong Kong's stock exchange, Fonterra will decrease its risk of foreign exchange exposure and eliminate the need and cost for some currency hedging.
The 300 million bonds in renminbi, also known as yuan, will be used to expand its marketing, advertising and product distribution from seven cities at present, to more than 15 around China during the next three years.
Fonterra has estimated the Chinese dairy market is on track to triple in value from about $US22 billion in 2009 to $US70 billion by 2020.
Craigs Investment Partners broker Peter McIntyre said Fonterra had an "exceptionally" good name in Asia and he believed the bond issue, offering 1.2% yield for the three-year bonds, would be "easily achieved".
The bonds' crediting ratings are Standard and Poor's A+ and Fitch Ratings AA-, both carrying a "stable outlook" tag.
"This is part of a long-term play going into China. Their economy is getting wealthier and is seeking more protein, which Fonterra is able to deliver," Mr McIntyre said.
He highlighted Fonterra's expansion, from seven to 15 cities, included making inroads into the smaller "tier two and tier three" cities, and its ability in already supplying about a third of the world's dairy products to maintain growth plans for China.
Fonterra general manager of treasury Stephan Deschamps said the Chinese market had grown significantly during the past year, reflecting the importance of China and its currency in the world economy and trade.
He said Fonterra's foray into China was a first for an Australian or New Zealand corporate to tap the Hong Kong bond market in renminbi currency.
"As our business with Chinese customers expands, it makes sense to seek a greater alignment between our Treasury borrowing and our business activities," Mr Deschamps said in a statement yesterday.
Mr Deschamps said the bond issue represented more diversification in Fonterra's treasury strategy, as it already has debt denominated in US and New Zealand dollars, the euro, sterling and Japanese yen.
Fonterra China president Philip Turner said, "We see huge potential to expand the breadth of products we offer in China, as well as the geographical distribution of our consumer brands and food-service dairy products."
