Chinese interest in investing in Fonterra's shareholder fund was predictable once the scheme was approved and underlines the need for constitutional protections for the Trading Among Farmers scheme, says the main farm lobby group.
China's sovereign wealth fund, the $US400 billion ($NZ494b) China Investment Corp (CIC), is in talks to buy units in the $525 million fund with an investment smaller than $US100m, the Wall Street Journal has reported, citing people with direct knowledge of the plans.
The Fonterra Shareholders' Fund aims to raise as much as $525m selling shares in an indicative price range of $4.60 to $5.50 apiece, giving outside investors exposure to up to seven per cent of the dairy co-operative's equity.
The final price will be set by a bookbuild among institutions and NZX firms on about November 27.
Fonterra says talks between joint lead managers for the offer and institutions are confidential.
Approaches have been made to institutional investors in New Zealand, Australia, and certain other overseas jurisdictions in Asia and Europe, it said in a statement.
"Until the bookbuild process has been completed, it is impossible to know what any institution's ultimate intention might be," Fonterra said.
Federated Farmers dairy chairman Willy Leferink said reports of Chinese interest, if true, "were predictable once the decision to go down this (shareholder fund) path was made.
"It further underscores the need for Fonterra shareholders to approve constitutional protections at the AGM around Trading Among Farmers," Mr Leferink said.
Under the terms of the prospectus, no single investors can own more than 15 per cent of the fund, suggesting CIC would be restrained from buying more than about $79m of the units.
The Beijing-based fund may have trouble securing even that much amid reports broker allocations will be scaled back because of strong demand.
Unit holders will get the rights to Fonterra's share dividends without owning the shares.