The first float of an Australian dairy farm is being opened to mum-and-dad investors, after an institutional offering exceeded expectations.
Australian Dairy Farms has received commitments of $8.5 million of its $14.5 million target from institutional investors in Hong Kong Malaysia, New Zealand and Australia
The company had planned to secure about $5 million before opening the offer to retail investors.
Bell Potter’s Darren Craike, who is managing the float, said it was not surprising that there was “strong interest” from Asia and New Zealand.
“They understand what’s happening in the dairy industry,” he said.
Mr Craike said hopes retail investors will comprise about 40 per cent of the offering, to allow liquidity in the stock.
He said he expects other dairy farms to become listed. “It is something that once you unleash is really strong.”
A prospectus and product disclosure statement will be released later this month. Australian Dairy Farms has been created through a backdoor listing with APA Financial services.
Upon relisting, Australian Dairy Farms will own two farms in south-west Victoria, which traditionally has reliable rainfall. It hopes to buy another 14 with a minimum of 500 cows per farm (the Victorian average is 300) to produce 50 million litres of milk a year by 2016
Global milk prices, although declining 20-25 per cent this year, are hovering at historical highs, thanks to a seemingly insatiable appetite in China for dairy products, particularly baby formula.
New Zealand is well placed to capitalise on this demand, with its government signing a free trade agreement with China in 2008. After eight years of negotiations with Beijing, Australia is yet to enter such an agreement.
But unlike New Zealand, Australian dairy farm prices have fallen and Australian Dairy Farms believes that combined with strong global demand strengthens the case to create a listed farm.
“There’s only so many places in the world that have prime dairy land,” Australian Dairy Farms director Adrian Rowley said.
The company plans to give investors two types of returns – earnings from dairy operations and exposure to rising farm prices off a cyclical low.
Mr Rowley said the company’s plan was to become Australia’s biggest milk producer and be able to be a “price maker” rather that “taker” during contract negotiations with processors.
He said it could also consider joint ventures in processing plants with about 50 million litres of milk a year needed for UHT and 200 million litres a year for higher-value products such as milk powders.
“But while there is excess capacity in the production industry it doesn’t make sense to invest in processing," Mr Rowley told Fairfax Media earlier this month.
