Synlait shareholders big and small face a turbulent two months as a huge capital rescue package is devised, proposed, voted on and executed.
The listed dairy processor needs to raise at least $180 million to repay retail bonds in December, and likely much more than that to retire further debt and secure a long-term future.
On January 31, its half-year results included disclosure of $590 million of total borrowings, including $130m that had to be repaid by July 15 and the $180m due in December.
Synlait chair George Adams has said the need is to raise hundreds of millions of dollars, without being more exact.
He would not underestimate what he called the complexity of attempting to raise many times the current market capitalisation of $70m, although Synlait does have net tangible assets of around $580m.
He has laid out a timetable for the recapitalisation proposal in early August followed by another special meeting of shareholders to approve the process.
Clearly the keys to any degree of new capital are with major shareholder Bright Dairy of China on 39% of existing shares, and major infant formula base customer a2 Milk Company, with 20%.
Both appear likely to significantly increase their shareholding percentages through the recapitalisation.
Bright has already lent Synlait $130m, approved by 99.6% of shares that voted in the special meeting on July 11.
It took the opportunity of repeating its 15-year commitment to Synlait, saying that short-term challenges will be overcome.
Newly appointed Synlait director Julia Zhu said Bright is deeply committed for the long term to its investments in NZ food companies.
Bright Food Group, listed in Shanghai and wholly owned by subsidiaries of the Shanghai Municipal Government, also owns 50% of New Zealand’s largest meat company, Silver Fern Farms, through a subsidiary called Shanghai Maling, purchased in 2015 for $260m.
Zhu said Synlait has a highly valuable portfolio of assets, including the best NZ dairy farms with a first-class reputation across Asia.
She recently visited Synlait Dunsandel and met some of the farmers.
Adams said the areas of focus for the board included the North Island strategic review, retaining farmers-suppliers and sustainable earnings growth in FY25 and beyond.
A2 Milk said it is in ongoing discussions with Synlait on the broader recapitalisation plans.
Meanwhile, the bottom feeders in the share market have been active.
Synlait shares have been heavily traded every day since the Bright loan proposal was first announced.
On July 11, the special meeting day during which there was a two-hour trading halt, 2.1 million shares were traded at prices between 28c and 38c.
The trades were of parcels up to 250,000 shares a time.
The day after, Friday July 12, a further 1.2 million shares were traded in smaller parcels around 33-34c.
These are large daily trading volumes for a listed company with 218.5 million shares issued, suggesting that the stock is being played by short-term speculators.
While speculators see opportunities in price movements of a few cents, longer-term investors have ridden Synlait shares all the way down from $10 in 2019 and $3 only two years back.
The 250 farmer-suppliers are unlikely to be among the longer-term share owners, as Synlait was set up without the need for farmers to buy supply shares, unlike Fonterra, and this was a big part of their decisions to supply.
They are, however, vital to recovery and must be convinced to stay as suppliers, especially the third of them who produce A2 milk.
