Synlait defers IPO after lack of support

Photo / Christchurch Star

Concerns about the largest shareholder selling out and high debt levels are being blamed for a lack of support for the float of dairy firm Synlait.

The South Island company yesterday said it would defer its plan for an initial public offering and listing on the stock exchange in a move that surprised the market.

Synlait had been expected to reveal the details of the float any day in a three-stage process that was to raise around $150 million.

But in a brief statement the company said it had received strong support for the IPO from local institutions and the lead manager First NZ Capital but the overall level was insufficient to proceed at this time.

"Following a pre-marketing programme to brokers and local and international institutional investors, Synlait Milk Limited (Synlait) advises that it has deferred its plans to IPO."

The company, which was set up in 2007 when its owners split from Fonterra, had been expected to use the money to build a second milk processing plant on its existing site at Dunsandel in Canterbury.

The move would have allowed the business to double its capacity to process raw milk into a variety of milk powders for export.

The Business Herald understands Synlait had talked to institutions about selling the shares for $1.60 a share but a price could not be agreed on.

Paul Richardson, chief investment officer at BT Funds Management, the fund management arm of Westpac, said it had decided not to support the float because there were a number of other opportunities in the market at the moment that had ranked above the Synlait offer.

"We had a look at it but it didn't quite meet our criteria on risk and return."

Richardson said Synlait appeared to have quite high debt. He also expressed concerns over its largest shareholder Mitsui & Co using the float as a way to sell out of the business.

Mitsui & Co bought into Synlait in 2007 and owns around 22 per cent of the business. It is understood to have an agreement that allows it to sell its stake on floating the business.

Other commentators were also worried that Synlait was only floating its production arm, Synlait Milk, not the part of the business which owns the dairy farms.

Broker Hamilton Hindin Greene's James Smalley said the pulling of the float had come as a surprise and was a disappointment.

Smalley believed it showed the appetite by Kiwi investors had been reduced in the wake of the global financial crisis.

"It's not necessarily a reflection on Synlait itself but how difficult the market is for equity IPOs at the moment."

Smalley said investors may also have been concerned about the long-term payback period associated with it.

"It involved a new development that wasn't going to pay back until 2012. Perhaps investors weren't happy with the long-term nature of it."

Smalley said it was bad news for the NZX.