Synlait Milk faces a make-or-break meeting on Thursday. Photo / NZME
Synlait Milk faces a make-or-break meeting on Thursday. Photo / NZME
Synlait Milk chairman George Adams says shareholders face a “vote or die wondering” moment as a special meeting on whether the debt-laden dairy processor can accept a lifeline from key shareholder, China’s Bright Dairy, approaches.
Thursday’s meeting at Dunsandel, in Canterbury, is to vote on a href="https://www.nzherald.co.nz/business/synlait-can-recover-chinas-bright-dairy/CD4OAZYKZVGVDISAFWATJIWKN4/">proposed $130 million shareholder loan to be made available to Synlait by Bright Dairy International Investment – a company related to Bright Dairy, Synlait’s 39.01% shareholder.
Bright Dairy cannot vote in favour of the resolution and directors appointed by Bright Dairy have abstained from making a recommendation.
If the resolution is approved, Synlait will fully draw down the loan to meet the $130m payment due to its banks on Monday.
Synlait and its 19.8% shareholder, a2 Milk, have continued to engage in discussions but a2 has yet to reveal its hand.
Adams is encouraging all shareholders to vote. Even if a2 votes against the proposal, other minority shareholders could see it through.
“They [a2 Milk] are under no obligation to tell us what they are going to do,” Adams told the Herald.
“It would be great to know, but ultimately they are not obliged to owe us a duty that says: you must tell the company which way you are going to vote.”
A2 Milk, and the balance of minority shareholders, represent 61% of the shares that can be voted at the meeting.
“It means that if a2 Milk did vote against it, you would need 60% of the balance of shareholders to turn up and vote,” Adams said.
“What I have been saying to our other shareholders is that ultimately, you don’t want to die wondering on this one,” he said.
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.
“But if you are trying to get money into the business and the shareholders say no, then that pretty much is your answer.”
Adams said the proxies that have come through so far were “overwhelmingly in favour” of the deal.
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 Oliver Mander told BusinessDesk.
Bright Dairy, which has been with the company since its inception, said Synlait had the potential to recover.
Synlait chair George Adams.
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.
Synlait’s shares last traded at 25.5c, having lost 84.3% over the last 12 months, and its $180m worth of NZX-listed bonds – which fall due in December – rarely trade.
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.
