Stephen Cadogan: Glanbia farmers grab timely bond market opportunity

More and more companies are benefiting from lower borrowing costs by issuing bonds.

Among Irish companies taking advantage of market conditions to issue bonds recently were the telecommunications company Eir, ESB, and the Dublin Airport Authority.

An unusual presence among these heavy hitters was the Glanbia Co-operative Society, raising €100 million by issuing a five-year bond exchangeable against Glanbia PLC shares which it owns.

Glanbia Co-op will use most of the proceeds from the bonds to enable its farmer members draw down funds on an interest-free basis whenever the market price for milk and grain falls below specific levels.

Companies are turning to the corporate bond market because low borrowing costs are set to fall even further due to the European Central Bank (ECB) expanding its asset-purchase programme to include corporate bonds.

It’s a rare occurrence for a co-op owned by 16,000 farmers to raise €100m on the corporate bond market, but market makers were happy to accommodate them.

The five-year Equity-Linked Exchangeable Bond launched by the Co-op is an innovative financial product that leverages the strength of Glanbia plc.

It is linked to a pledge of approximately 4.3 million Glanbia Plc shares.

The Co-op retains full ownership of the 4.3 million shares unless the exchange is exercised.

The total number of ordinary shares in issue by Glanbia plc will not change as a result of this bond.

From the funds raised, €55m goes to provide interest-free cash flow supports to dairy and grain farmers, as part of Glanbia Co-op’s efforts to combat volatility.

Members can draw down interest-free funds whenever the market price for milk and grain falls below specific levels, and the co-op will recover the funds drawn down when milk and grain prices exceed a higher price trigger.

This Glanbia Advance Payment (GAP) Scheme will run from May 2016 to December 2020, for example, offering at least 2cpl in any month where the base Glanbia Ingredients Ireland (GII) manufacturing milk price falls below 24 c, including VAT.

Grain supplier members can be advanced €20 per tonne, if the Euronext exchange price falls to €180.

It’s another innovative credit scheme from Glanbia, which earlier this year launched the €100m MilkFlex fund to provide loans from €25,000 to €300,000 to their 4,800 milk suppliers, with adjustable repayment terms tied to the milk price trend, including suspension of repayment for six months in the event of the milk price going under 26 cents a litre for three consecutive months — as it has this year.

Compare the Glanbia Co-op initiative with the lower interest loans and improved access to credit for farmers from the European Investment Bank, which Agriculture Commissioner Phil Hogan started talking about more than 20 months ago.

Since then, he continued to highlight how EIB loans could give farmers more competitive options than those available with the two main Irish commercial banks.

His comments have kept pressure on the banks here to lend competitively to farmers, but there’s no sign yet of the low-interest 15-year loans backed by the EIB, which ICMSA members were told at their AGM in Limerick last December could have been in place by mid-2016.

However, politics and business are a poor mix, with then Agriculture Minister Simon Coveney saying it was unlikely his Department would have proposals ready in time for an EU review of Ireland’s 2016 Rural Development Programme, to establish an EIB loan facility as part of the Rural Development Programme. Minister Coveney said groundwork evaluations alone would take three to 12 months, then agreement must be reached between his Department and potential stakeholders or financial institutions.

Not much would get done in the dairy business if decision making was so slow!

Glanbia has also distributed over €600m in share ‘spin-outs’ and support funds over the last three years, as well as fixed milk price schemes.


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