Wednesday, July 6, 2022

Tough choice for Synlait shareholders

Synlait group’s New Zealand shareholders have some big decisions ahead over the next few weeks or months, with both operating companies working on plans to raise more capital.

Synlait Milk’s announcement it will make a capital raising, as part of a planned listing on the NZX, follows Synlait Farms setting up on the Unlisted platform and saying it also planned to bolster its equity levels.

The same group of shareholders own nearly half the underlying interest in Synlait Milk, the manufacturing business, and the majority shareholding in Synlait Farms, the owner and operator of dairy farms.

The group owns 77.5% of Synlait Farms and all of Synlait Ltd, which owns 49% of Synlait Milk.

Ahead of the planned Synlait Milk initial public offering (IPO), Synlait Ltd will distribute its Milk shares to its own shareholders on a pro-rata basis.

They will then have the opportunity of selling some or all of their shares into the IPO, or could choose to invest more capital.

Those who did not sell all of their shares into the IPO would be subject to escrow arrangements, preventing the subsequent sale of shares for a certain time.

Synlait Milk has not said how much it intends to raise, but wants new funds to support various growth initiatives, including a new packaging plant and a $15 million high-value nutritionals processing expansion.

The company will then refinance its debt arrangements. It has made good progress building its customer base for milk powder products, especially in China, where 51% shareholder Bright Dairy & Food is based.

Synlait Milk’s statement said Bright Dairy was expected to retain its full investment.

There was no mention of it contributing new funds to maintain its 51% shareholding.

Milk chairman Graeme Milne said he could not add any comment to what was in the statement.

Sharebrokers First NZ Capital and Goldman Sachs will jointly manage the capital raise, with the offer price to be based on a book-build process involving investment institutions.

Synlait Farms has not made final decisions on capital raising, but in a presentation as part of its arrival on Unlisted in late March a potential figure of $36m was indicated.

The 22.5% of Synlait Ltd not held by the Farms shareholders is owned by Japanese group Mitsui.

Synlait founders Juliet MacLean, Ben Dingle, and John Penno hold their shares separately, but between them own just more than 50% of Synlait Farms and 38% of Synlait Ltd.

Synlait Milk’s planned IPO looks to be a change in tack from when the annual report was published in December, when Milne wrote it was likely the company would approach Bright Dairy and Synlait Ltd for further equity within the next 12 months.

He said the company’s entry into the nutritionals market had been particularly well timed.

Synlait Milk made its first after-tax profit, of $6.3m, in the latest July 31 year and had strong operating cashflow.

At July 31, borrowing financed $93m of the company’s $280.6m of total assets.

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