Synlait Milk was due to pay $130 million in debt to its bankers today but investors will now have to wait until Tuesday for an update.
Synlait Milk was due to pay $130 million in debt to its bankers today but investors will now have to wait until Tuesday for an update.
Synlait Milk was to have paid $130 million in debt to its bankers today, but investors in the cash-strapped dairy processor will now have to wait until Tuesday for clues as to how the company can repay the debt and repair its stretched balance sheet.
The company played for timeby asking the NZX to put its listed shares and bonds on a trading halt while it finalised discussions with its banking syndicate regarding an extension to the $130m “prepayment” obligation, and with its major shareholder, Bright Dairy, regarding financial support.
Synlait’s aim was to update the market in an “orderly and complete” manner at the release of its half-year results.
The result was to have been released on March 25 but that has been pushed out to Tuesday - the latest possible date to report under NZX listing rules.
Market analysts say a capital raise looks possible, but given the issues Synlait currently faces any rights issue would have to be at a discount to an already depressed share price.
Interestingly, Synlait’s biggest customer a2 Milk, which has just short of 20 per cent of the stock, was left out of today’s announcement.
Synlait, the sole supplier of infant milk formula to a2, is running a sale process for its profitable Dairyworks subsidiary and has said it would not sell at firesale prices.
Today’s $130m “prepayment” was part of a refinancing package reached with a new banking syndicate comprising ANZ, Bank of China, China Construction Bank, HSBC and Rabobank last September.
Shares in Synlait last traded at 75c, having lost 65.6 per cent over the past 12 months.
Synlait’s NZX-traded bonds, which mature in December this year, were last quoted at a yield of 37 per cent.
In its latest guidance, issued in February, Synlait said it expected to report a net loss in the range of $17m to $21m for the six-month period.
The company’s latest annual result came to a net loss of $4.3m.
In its last result, Synlait said it had been a highly challenging year, with material reductions in customer demand, CO2 shortages, extreme weather events, the Covid-19 pandemic, and inflationary impacts, among other things.
The company, which started manufacturing activities at Dunsandel, South Canterbury, unveiled a major expansion plan in 2016 that later involved the construction of extensive new facilities at Pokeno, near Auckland.
Since its inception, Pokeno has remained underutilised.
Separately, relations have become strained with a2 Milk, which is disputing the exclusivity of its infant formula manufacturing agreement with Synlait.
Devon Funds head of retail Greg Smith said a deeply discounted rights issue for Synlait was possible.
He drew parallels between Synlait and retirement village company Ryman, which raised $902m through a rights issue last year to shore up its balance sheet.
“We saw it a year ago with Ryman, when there was a lot of concern about their debt, but this is probably a much more extreme situation,” he said.
“Obviously, things are going down to the wire with their debt negotiations, which is not going to make for a particularly pleasant long Easter weekend for those involved,” he said.
Smith said Synlait looked to be “copping it” on a number of fronts.
Synlait is having to contend with a number of challenges.
“They’re trying to alleviate that debt by selling Dairyworks, so they are effectively a forced seller.
“Meanwhile, the customer that they are the most reliant on - a2 Milk - is looking to end the exclusivity agreement, so there is a stoush there.”
Smith said a rights issue, albeit a deeply discounted one, would give Synlait some breathing room.
“It probably goes to the fact that the company has been scrambling on a number of fronts, but it’s quite unusual for a company to take it that close to the wire.”
Neither a2 Milk nor Bright Dairy, a state-owned enterprise, are strapped for cash.
Smith said Synlait will be reliant on Bright Dairy for support.
“It would obviously be in their best interest to ensure that the company survives.”
Synlait’s result is due out before the market opening on Tuesday.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
