Synlait Milk is on the brink of a pivotal restructuring as it seeks approval from shareholders to secure a $130 million loan from its cornerstone shareholder, Bright Dairy, a state investor from China. This financial move, as outlined in an independent report by Northington Partners, is deemed crucial for Synlait’s survival ahead of looming financial obligations.
The loan is described as concessionary and fair to minority shareholders, according to the Northington Partners report, which was released to guide shareholder decision-making. The report highlights that this financial injection could provide Synlait the necessary buffer to restructure its capital and prepare for future operations.
Bright Dairy, which holds a 39% stake in Synlait and cannot vote on the loan approval due to its shareholding status, initially invested in Synlait in 2010. This strategic partnership has been fundamental in supporting Synlait’s expansion, including the development of various production facilities that are crucial to its operations today.
Critical Financial Timeline
Synlait faces a tight deadline to repay $130 million in senior bank loans by July 15. The proposed loan from Bright Dairy, which shareholders will vote on July 11, is intended to meet this obligation. Failure to secure the loan could result in Synlait entering voluntary administration or receivership, posing significant risks to shareholder investments.
The company’s financial health has fluctuated, with significant capital investments totaling over $1.5 billion since its inception. Recent financial performances have shown a downturn, with earnings before interest, tax, depreciation, and amortization (EBITDA) forecasted at just over $45 million in FY24, a stark decrease from previous years.
Future Outlook and Strategic Moves
Aside from the immediate financial relief the loan would provide, Synlait and its advisors are planning an equity raise later this year to further stabilize its finances and address $180 million in unsecured subordinated bonds due in December. Bright Dairy has indicated its support for the equity raise, which could potentially increase its shareholding.
The strategic review by Northington also suggests alternative actions, such as the sale of assets including the Pōkeno site and central Auckland packaging facilities, valued at approximately $340 million. However, any sale would also require shareholder approval, adding another layer of complexity to Synlait’s strategic decisions.
As the vote approaches, shareholders are faced with a decision that could pivotally shape the company’s future. Approval of the loan is seen as crucial to avoiding insolvency and providing Synlait with the necessary time to reorganize and plan for a sustainable financial structure.
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