Synlait needs 'influential' a2's support for Bright Dairy...

Synlait needs 'influential' a2's support for Bright Dairy lifeline

Struggling dairy manufacturer Synlait says it doesn’t know whether “influential” shareholder a2 Milk will vote in favour of a $130 million lifeline from its major Chinese shareholder.

The company said Tuesday that a2’s vote would be influential in deciding if the critical shareholder loan needed to pay off bank debt due July 15 went ahead.

It said without the loan from an associated company of its largest shareholder, Bright Dairy, its board’s view was that Synlait would need to cease trading or initiate insolvency proceedings.

A2 and other Synlait shareholders will vote on the loan at a special general meeting now scheduled for four days before the loan is due, on July 11.

Synlait said it had engaged in discussions with a2.

“The a2 Milk Company Limited has not determined how it will vote on the resolution. If Synlait is advised of a change of status of the a2 Milk Company Limited’s voting intentions, it will update shareholders by way of market announcement.” a2 has a 19.8% stake in Synlait.

Bright Dairy will be excluded from the vote. It has a 39.01% stake in the company.

Loan terms

Synlait gave some fresh details of the loan term from its Chinese shareholder. It would initially have a 12-month term with the New Zealand Exchange-listed (NZX) firm paying 8% per annum in quarterly instalments.

Synlait said the loan could be extended for a further twelve months subject to certain conditions. The extension option could be exercised once for a total term of two years.

Shareholders will vote on an ordinary resolution at the July 11 meeting with a simple majority of the votes required.

Synlait’s independent directors unanimously recommended shareholders vote in favour of the resolution. It also needs approval from its banks.

It released an independent report from Northington Partners on Tuesday which concluded the loan terms and conditions were fair to shareholders not associated with Bright Dairy.

Bright takes its own loan

Bright Dairy itself also had to seek approval from Chinese authorities for the loan.

On June 22, it told the Shanghai stock exchange its related company, Bright Dairy International Investment, which was extending the loan to Synlait, had negotiated a loan from the China Construction Bank guaranteed by Bright Dairy.

A translation of the notice published to the Shanghai exchange said Bright Dairy had held a board meeting on June 21 to approve the China Construction Bank loan and company guarantee.

The loan for Bright is about CN¥561m (NZ$126.2m).

The terms of Bright’s loan are for one year with a floating three-month interest rate.

“In addition to being approved by more than half of all directors, this loan and guarantee must also be approved by more than two-thirds of the directors present at the board meeting and submitted to the company's general meeting of shareholders for deliberation,” the translation said.

Synlait needs $45m earnings

Synlait said it was also seeking approval for the bridging loan from Bright Dairy from its banks. The shareholder loan would rank behind the banks but ahead of Synlait’s bonds.

The embattled dairy company said it would likely breach three of its banking covenants as of July 31, and it had put forward a package of waivers to its banking syndicate.

On Tuesday, it said in addition to short-term relaxation of its banking covenants, it had asked its banks for further waivers for its leverage ratios and interest coverage ratio, and a deferral of the maturity and limit step-downs of facilities through to the end of July.

The banks had confirmed they had approval for those waivers, but Synlait has to hit adjusted earnings before interest, taxes, depreciation and amortisation for the 2024 financial year of $45m.

Synlait chair George Adams said Synlait was progressing at pace with a series of structural initiatives to address the scale of challenges it faced.

“We are committed to resetting Synlait’s balance sheet, with the support of Bright Dairy, to ensure we return to a position where we can deliver the growth potential we see in our core Advanced Nutrition and Foodservice businesses.”

It has said it would review its North Island assets including the Pokeno plant.

Deeply committed to Synlait

Bright Dairy again spelled out its support for Synlait in the NZX notice.

Director Julia Zhu said on behalf of Bright Dairy's appointed directors the $130m loan was one part of Bright’s wider support to see Synlait return to a much stronger financial and operating position.

“We are deeply committed to Synlait, believing its assets and operations to offer significant value and opportunity within regional and global dairy markets. Notwithstanding Synlait’s short-term challenges, we see a pathway to growth and future value, and we will continue to work closely with the board and management team to do what we can to help with the company’s turnaround plan.”

Zhu said Bright Dairy fully supported Synlait raising equity capital, subject to finalised terms and all necessary approvals being received, to more substantially reset the company’s equity and debt position to provide a platform to return to sustainable growth for Synlait’s farmers and all shareholders.

Synlait said it was continuing to progress the structure, terms and conditions of a proposed equity raising and would further update shareholders by the end of August or possibly earlier.

A spokesperson for Synlait shareholder the Accident Compensation Corporation told BusinessDesk on June 7 it would consider any board proposals, including capital raising, aimed at protecting shareholder value in Synlait.