Fitch Withdraws Fonterra Ratings After Dairy Giant Ends Engagement

Fitch Ratings announced on 2 June 2026 that it will withdraw all credit ratings for New Zealand's Fonterra Cooperative Group. The decision follows the dairy exporter's move to end its paid rating engagement with the agency. The withdrawal will affect Fonterra's Long-Term Issuer Default Rating of 'A-' and its Short-Term IDR of 'F2'. This action removes a key benchmark for global creditors assessing the cooperative's debt. Fonterra's $800 million bond program maturing in 2030 yields approximately 4.8%.

Context — [why this matters now]

Fonterra's decision to disengage from Fitch reflects a broader trend among investment-grade corporates reassessing the value of maintaining multiple ratings. The last significant withdrawal by a New Zealand entity occurred in 2021 when Auckland International Airport ended its relationship with S&P Global Ratings. That move was followed by a 15 basis point tightening in its bond spreads as the market consolidated around the remaining Moody's rating. The current macro backdrop features elevated global dairy prices, with the Global Dairy Trade price index up 3.2% year-to-date. New Zealand's 10-year government bond yield sits at 4.55%, providing a benchmark for corporate debt pricing. Fonterra's strong operational cash flow generation, which exceeded NZ$1.5 billion in the last fiscal year, likely underpins its confidence in operating with one less rating agency. The cooperative has reduced its total debt by over NZ$3 billion since 2020.

Data — [what the numbers show]

Fonterra's financial metrics demonstrate its current credit strength. The cooperative reported a net debt to EBITDA ratio of 1.7x for the 2025 fiscal year, down from 3.1x in 2022. Its EBITDA for the period reached NZ$2.1 billion on revenue of NZ$25.4 billion. Fonterra's liquidity position remains strong with NZ$1.8 billion in available cash and undrawn credit facilities. The table below compares Fonterra's key credit metrics against the 'A-' rating median.

Metric	Fonterra (FY2025)	'A-' Median
Funds from Operations / Debt	45%	35%
EBITDA Margin	8.3%	12.1%
Debt / EBITDA	1.7x	2.5x

The cooperative's bonds currently trade at a spread of 120 basis points over New Zealand government bonds. This compares to a spread of 95 basis points for ASX-listed dairy peer A2 Milk Company's corporate debt.

Analysis — [what it means for markets / sectors / tickers]

The rating withdrawal primarily impacts fixed-income investors who rely on Fitch's analysis for portfolio compliance and risk modeling. Fonterra's debt will now be benchmarked solely against S&P Global Ratings' 'BBB+' score. This consolidation could marginally increase volatility in the secondary market for Fonterra bonds, particularly for smaller institutional buyers mandated to hold securities rated by at least two agencies. A counter-argument is that the withdrawal signals underlying credit strength, as the cooperative sees less need to pay for redundant rating services. Fund flows may shift towards bonds issued by dual-rated New Zealand corporates like Meridian Energy [MEZ.NZ] and Contact Energy [CEN.NZ] as a perceived safer haven. New Zealand's entire dairy sector, which contributes over NZ$20 billion annually to export earnings, will be scrutinized for similar cost-cutting moves. The direct impact on equity is likely minimal, as Fonterra's share price is more sensitive to milk powder auction results than credit rating actions.

Outlook — [what to watch next]

Market participants should monitor Fonterra's next debt issuance, expected in the fourth quarter of 2026, for pricing clarity post-withdrawal. The Global Dairy Trade auction on 17 June will provide a crucial signal for Fonterra's core earnings power. Key levels to watch include the yield on Fonterra's 2030 bonds; a sustained move above 5.2% would indicate heightened creditor risk perception. The S&P Global Ratings review scheduled for 15 August represents the next formal credit assessment. If New Zealand's 10-year government bond yield breaches 4.75%, it would pressure all corporate bond yields higher, potentially magnifying the effect of the Fitch withdrawal.

Frequently Asked Questions

What does Fitch withdrawing Fonterra's rating mean for bondholders?

Bondholders who rely exclusively on Fitch ratings for investment mandates may be forced to sell their positions, creating temporary selling pressure. Most institutional investors use ratings from multiple agencies, so the practical impact is likely contained. The larger effect is the loss of an independent opinion, which could make credit analysis more opaque. Bondholders should scrutinize S&P's upcoming review for any change in outlook.

How does Fonterra's financial health compare to before its last rating downgrade?

Fonterra's credit profile has improved significantly since its 2020 downgrade to 'BBB+'. Net debt has fallen from NZ$5.8 billion to NZ$3.5 billion, and the dividend payout ratio has been restored. The cooperative's strategic shift to higher-value ingredients has lifted its average selling price by 18% over the period. Operating margins have expanded from 5.1% to 8.3% since the downgrade.

Can Fonterra still access credit markets with only one rating?

Yes, many large corporates operate successfully with a single credit rating. Fonterra's strong balance sheet and status as New Zealand's largest exporter ensure continued market access. The cost of debt may increase by 5-10 basis points due to the reduced transparency. The cooperative's existing banking syndicate, which includes all four major Australian banks, remains fully supportive.

Bottom Line

Fonterra's terminated Fitch engagement reflects cost discipline more than credit deterioration.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.