GRAINCORP has executed a long-term contract with an insurer intended to take the peaks and troughs out of its cycle of earnings associated with the volatility of eastern Australian winter grain crop production.
In its first such insurance contract, GrainCorp in any year would receive a maximum of $80m, or pay a maximum of $70m, triggered by agreed lower and upper thresholds of production across Victoria, New South Wales and Queensland.
The contract limits the net payment to either party to $270m over the 10-year term commencing 1 October 2019 in the agreement between GrainCorp and White Rock, a subsidiary of insurance company Aon.
“The contract will smooth GrainCorp’s cash flow and allow for longer term capital allocation and business planning through the cycle,” GrainCorp chief executive officer Mark Palmquist said in a statement today.
It is not subject to a right of termination in the event of a change of control of GrainCorp.
Derivative not a precondition for demerger
GrainCorp in April said it intended to demerge its global malting business to a new entity, MaltCo, from the rest of its domestic and international interests.
The future execution of a proposed grain derivative was not a requirement of GrainCorp proceeding with the demerger.
The MaltCo demerger is targeted to occur by the end of calendar year 2019.
Its April statement named the residual entity New GrainCorp the local and offshore operator of processing, handling, storage and trading businesses.