SASKATOON – Saskatchewan Wheat Pool members wouldn’t be asked to turn their equity into shares if there was any significant financial risk, says the pool’s top finance official.
At country meetings across the province, many pool members have said they’re reluctant to see their equity in the company converted into shares that would be traded on a public stock exchange.
They’re worried that the value of those shares might go down, reducing what is seen by many farmers as their retirement fund.
Proponents of the plan agree there is no guarantee that share prices won’t drop. But in an interview last week, the pool’s chief financial officer Lyle Spencer came close to offering one.
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“If we believed that members were going to lose their investment, we wouldn’t proceed with this,” he said.
If the pool does a good job of running its business and investors believe it will continue to grow and provide a dividend, then the price of shares will increase, he said.
Shares issued by United Grain Growers Ltd. last summer for $8 are now trading above $10 each. While the UGG share structure is not the same as that proposed by the pool, the appreciation in UGG shares is seen as a positive sign.
Spencer said the primary goal of the pool’s proposal is to convert existing member equity into share capital, thus improving the company’s debt to equity ratio (money markets treat member equity as debt).
That gives the company more flexibility in its search for new funds to finance elevator operations and diversification.
“Once we’ve got into a strong equity position, we may elect to issue new shares or we may say it’s more advantageous to borrow,” he said. “It gives us a choice based on what seems most appropriate at the time.”
To pay for expansion, diversification and capital projects, the pool needs $200 to $250 million over the next three years, according to figures presented at a district meeting in Cudworth April 5. Based on current earning projections, the company will fall $150 million short of that.
“The needs for capital exceed the ability to raise it internally and it’s not wise to raise it entirely through debt,” said Spencer.
But he declined to say exactly how much money the pool might want to raise through borrowing or a new share issue, citing the need for commercial confidentiality.
