Arla Foods refinances bank debt through €175m corporate bonds issue

28-May-2013 - Last updated on 29-May-2013 at 13:50 GMT

Arla Foods has given professional investors the opportunity to invest in the company through the issue of SEK 1.5bn ($225m, €175m)-worth of corporate bonds – a move designed to refinance its existing bank debt.

Arla listed the corporate bonds, which have a maturity of five years, on the Dublin Stock Exchange yesterday. All the listed bonds were sold within two hours, according to Arla Foods chief financial officer (CFO), Frederik Lotz.

Speaking with DairyReporter.com, Lotz said that the positive effects of this corporate bonds issue will be felt by the cooperative’s 12,000 milk producer owners across Europe.

“Value” to be gained from investment

“There are two benefits to the issue of bonds as a financing platform,” he said. “Firstly, it allows us to exchange our short bank loan debts for longer bond debts – it’s cheaper for us and those benefits are passed on to our owners.”

“Also, as a company we want to diversify our credit platforms. We want to establish ourselves in the bonds market.”

“These are clear arguments for our decision,” said Lotz.

Arla targeted institutional investors - such as pension schemes and insurance providers - from Sweden, Denmark and Finland under the refinancing effort.

Lotz added that he was “shocked by the speed of the sale,” but claimed that there is real “added value” to be gained from investing in Arla.

“Investors will get the opportunity to lend credit to Arla and earn a good return on their investment,” said Lotz. “Lending credit to Arla Foods has real added value.”

Arla creating “broadest possible financing platform”

Also speaking with DairyReporter.com, Arla Foods spokesman, Theis Brøgger, said that through this bonds issue the company hopes to establish the “broadest possible financing platform” – but without compromising its dairy cooperative ownership structure.

This practice should supplement other financing sources such as shareholder consolidation, mortgage-credit bonds, and bank loans, he said.

“The main reason for this bond issue was to create a broader financing platform that will work with our existing cooperative structure. For us, the issue of corporate bonds has become just as important a source of external financing as bank loans."

Alongside the corporate bonds issue, Arla has established a Euro Medium Term Note (EMTN) programme.

The programme, which has also been registered with the Irish Stock Exchange, will enable Arla to use bonds more actively as a source of long-term financing.

“By creating the EMTN programme we’ll be set up to refinance and issue share bonds. We intend to use this tool much more actively,” said Brøgger.