Fonterra's credit rating has attracted a ''credit watch with negative implications'' from international rating agency Standard and Poor's, seemingly giving some credence to rising stockbroker concerns over Fonterra.
Stockbrokers have run a critical eye over Fonterra's $430million loan proposal and deferral of capital expenditure on maintenance.
S&P's credit analyst Brenda Wardlaw said the credit re-rating followed Fonterra's announcement of a lower forecast milk price, which was triggered by weak demand and surplus supply in the global dairy market.
''The credit-watch placement reflects our concerns regarding potential weakness in Fonterra's key financial metrics given its high debt levels at a low point in the global price cycle,'' she said in a statement.
She viewed the reduction in the forecast payout and advance price as well as the proposed reduction in capital expenditure of $500million-$600million ''favourably'', saying it was ongoing evidence of Fonterra's superior flexibility in milk-price setting.
''However, high debt levels reflecting the sizable acquisition of a shareholding in China-based Beingmate, combined with peak capital expenditure, at this low point in the dairy price cycle will place Fonterra's key credit metrics under pressure in the short term,'' Ms Wardlaw said.
S&P's A- long-term and A-1- short-term ratings of Fonterra, and its associated debt issues, now had a ''credit watch with negative implications''.
Aspects of Fonterra's proposed $430million interest-free loan to struggling dairy farmers and its deferral of capital expenditure on maintenance has been criticised by brokerage Forsyth Barr.
