“Those discussions relate to Synlait’s broader recapitalisation plan, which includes the shareholder loan as well as Synlait’s proposed equity raising and concurrent refinancing of its bank facilities, and various other matters,” a2 Milk said.
“A2 Milk continues to have concerns and will engage in discussions with Synlait in the coming weeks. In the meantime, the company confirms that it has advised Synlait that it will vote in favour of today’s resolution,” it said.
If the resolution is approved, Synlait will fully draw down the loan to meet the $130m payment due to its banks on Monday.
Trade in Synlait’s shares and bonds is due to go on hold for the duration of the meeting.
The independent directors of Synlait have unanimously recommended that shareholders vote in favour of the resolution and chairman George Adams told the Herald this week that proxy votes received before the meeting were mostly in favour of the deal.
Adams said shareholders faced a “vote or die wondering” moment at the special meeting.
Up until today, a2 Milk had not revealed its hand.
Adams said a failed vote would put directors in a difficult position.
“We know that we have a loan falling due on July 15 which we would be unable to pay, and that pushes you into effectively having to decide with the banks whether or not they are willing to give you any relief from that repayment, which is not beyond the realms of possibility, all the way to voluntary administration,” he told the Herald this week.
“But if you are trying to get money into the business and the shareholders say no, then that pretty much is your answer.”
Meanwhile, the New Zealand Shareholders Association (NZSA) has said it would vote its proxies in favour.
“It’s the first step to enable the company’s survival,” NZSA chief executive OliveMander told BusinessDesk.
By late morning, Synlait’s share price rallied by 8c or 30 per cent to 34c.
Bright Dairy, which has been with the company since its inception, said Synlait had the potential to recover.
Behind the scenes, Synlait is working on a capital raise – the size and structure of which has yet to be determined – to repair its severely stretched balance sheet.
In an interview with the Herald last month, Bright Dairy’s chairman Huang Liming stressed that Synlait had Bright Dairy’s support.
Synlait was Bright Dairy’s first overseas investment when it took a controlling stake 14 years ago.
Through an interpreter, Huang said Bright’s investment in Synlait was strategic.
“Our commitment to Synlait is really from a strategic perspective and also from a China-New Zealand agriculture perspective,” Huang said.
Synlait’s main problem is that while its Dunsandel complex is profitable, as is its investment in Dairyworks, its near-new $400m state-of-the-art nutrition facility at Pōkeno is under-used and has never paid its way.
The company has seen a slew of changes at a management and directorship level, and a string of earnings downgrades.
Adams, who was appointed as an independent director of Synlait in March, was made chairman after John Penno, the company’s co-founder and board-appointed director, stepped down.
In April, Synlait won an extension for a $130m debt repayment after asset impairments plunged the company into a $96.2m loss for the first half to January 31.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
