SML - Synlait

[Left Field]

Here it is folks..... Let's have a meeting.....

https://www.nzx.com/announcements/433341

Synlait Milk Limited's (Synlait) Special Shareholders' Meeting will be held on Thursday 11 July 2024 at 2.00pm, in person at Synlait's Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand, and online at: www.meetnow.global/nz


The meeting is to vote on the resolution to approve the proposed entry into a $130 million shareholder loan to be made available to Synlait by Bright Dairy International Investment Limited, a related company of Bright Dairy Holding Limited, Synlait's 39.01% shareholder. If the resolution is approved, Synlait will fully draw down the loan to meet the $130 million payment due to its banks on 15 July 2024.
 
 Importance of the resolution to Synlait's future
 
 Synlait will only be able to meet its $130 million payment obligation to its banks on 15 July 2024 if the resolution is approved by shareholders other than Bright Dairy by way of an ordinary resolution. An ordinary resolution is a resolution that is approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question.
 
 If the $130 million payment is not made and the banks do not agree to alternative arrangements, the Board believes Synlait will need to cease trading or initiate a formal insolvency process.

.............Whilst as at the date of the notice of meeting Synlait and The a2 Milk Company Limited have engaged in discussions, 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............


(Be great to be a fly on the wall watching the meeting.)

[Minimoke]

Key highlights
"If the $130 million payment is not made and the banks do not agree to alternative arrangements, the Board believes Synlait will need to cease trading or initiate a formal insolvency process."

A2 holds 32.52% of the vote. Very interesting they haven't yet committed to the loan

John Penno (assuming he hasn't sold down, holds 3.83% of the vote. But fair to say he is no friend of A2's

ACC holds 5.91% of the vote

And of course this only gets Synlait out of the $130m hole. No mention at all of how they are going to get out of the November $180m hole.

[Minimoke]

Even if shareholders approve the loan there are 2 further hurdles to get over by 15 July - because banks seen very insistent the 15th is the very last day..

- an internal resolution of Bright Dairy & Food Co., Ltd., approving the Shareholder Loan. As at the date of this
Notice of Meeting, this approval remains outstanding;
- evidence that the Shareholder Loan has been approved by the State-owned Assets Supervision and Administration Commission of Shanghai (SASAC) or any institution authorised by it. As at the date of this Notice of Meeting, this approval remains outstanding

These institutions may not be so keen on it being a second ranking loan. But at least it ranks above bond holders.

[Minimoke]

Can bond holders take any comfort.

Clearly an equity raise is on the horizon - if this loan goes through.

Synlait are anticipating Bright wil hold more than 50%. Which will trigger a bond redemption event.

And Synlait are anticipating this and hope to repay bonds for a new bank facility.

So I thank we can conclude there is a glimmer of a hope for bond holders.

And zero hope for small shareholders as their shareholding is going to be so diluted it will be worth nothing. So why vote in the upcoming loan vote.

Which leaves everything in A2's hands.

[Basil]

Which leaves everything in A2's hands.

It sure does.  I reckon 9 times out of 10 when there's a big vote like this, the party who has the most influence, (which is clearly A2 in this case) indicates they will support it before it goes to the vote.  My read on this...the fact they haven't means there's more than a 50% chance the vote fails and SML goes into receivership.   I think ATM wants to buy the Dunsandel plant off the receivers for pennies on the dollar.

[Minimoke]

It sure does.  I reckon 9 times out of 10 when there's a big vote like this, the party who has the most influence, (which is clearly A2 in this case) indicates they will support it before it goes to the vote.  My read on this...the fact they haven't means there's more than a 50% chance the vote fails and SML goes into receivership.   I think ATM wants to buy the Dunsandel plant off the receivers for pennies on the dollar.

My take on it is, and please excuse the metaphor, A2 have Synlaits balls in a vice. And they are turning the handle.

A2 have had plenty of time to consider the $130m loan and its implications along with the prospect of an equity raise. That they aren't in clear support of the loan today tells me they have a few turns of the handle left to go.

So are seeing the good old Good Cop/Bad Cop play out. Because I reckon at the end of the day, A2 product will still be produced and China will still be fed.

[Left Field]

In the  ATM v SML match I'm picking ATM.

In addition this from Hotcopper by CarlosG.

Update from StatNZ. Last month export to Australia, China, Hong Kong was [well] above average. Vietnam was alright. Surprisingly Korea hit a record level. Interesting developments in the US direction. For the first time (excluding initial shipments last year) there was two consecutive months of shipment (April and May) with increasing volume. I'll remind you A2M is the only NZ company that allowed to export to US.

I've added to my holding today.

[Teitei]

My take on it is, and please excuse the metaphor, A2 have Synlaits balls in a vice. And they are turning the handle.

A2 have had plenty of time to consider the $130m loan and its implications along with the prospect of an equity raise. That they aren't in clear support of the loan today tells me they have a few turns of the handle left to go.

So are seeing the good old Good Cop/Bad Cop play out. Because I reckon at the end of the day, A2 product will still be produced and China will still be fed.

Hahahaha

A2 is the eunuch here, not SML/Bright.

SML goes under and A2 can kiss its exports to China goodbye.

Hahahaha

[Minimoke]

Hahahaha

A2 is the eunuch here, not SML/Bright.

SML goes under and A2 can kiss its exports to China goodbye.

Hahahaha

Key things to look for are A2's inventory holdings as well as Synlaits inventory of finished product. This is part of a deliberate short term market volatility risk management process.

Then there is A2's further mitigation with its enhanced relationships with China State Farm Agribusiness and China Animal Husbandry Group.

On top of the recent Chinese delegation visit to NZ announcement that China wishes to free/speed up registration processes of infant formula.

Synlait (and therefor SAMR) has been precarious for quite some time. I would expect A2 wil have Plan B in play.

I'm unfamiliar with the re-registration process in the event of a change of ownership. But I presume operations / processes / quality etc at Dunsandel would not change with a change of ownership. And I also presume China will foresee global companies holding SAMR changing hands and won't impose  processes that threaten food security. Synlait won't be unique.

[Breezy]

Hahahaha

A2 is the eunuch here, not SML/Bright.

SML goes under and A2 can kiss its exports to China goodbye.

Hahahaha

Wrong and simplistic. Lol

[Teitei]

Key things to look for are A2's inventory holdings as well as Synlaits inventory of finished product. This is part of a deliberate short term market volatility risk management process.

Then there is A2's further mitigation with its enhanced relationships with China State Farm Agribusiness and China Animal Husbandry Group.

On top of the recent Chinese delegation visit to NZ announcement that China wishes to free/speed up registration processes of infant formula.

Synlait (and therefor SAMR) has been precarious for quite some time. I would expect A2 wil have Plan B in play.

I'm unfamiliar with the re-registration process in the event of a change of ownership. But I presume operations / processes / quality etc at Dunsandel would not change with a change of ownership. And I also presume China will foresee global companies holding SAMR changing hands and won't impose  processes that threaten food security. Synlait won't be unique.

China is a command economy.

Understand that and you will understand why A2 is a eunuch.

[Left Field]

SML goes under and A2 can kiss its exports to China goodbye.

Not quite...... A2M get to vote on the $130m loan.....while Bright are excluded from voting....

Plus consider the following from Werdplayer on HC

A2M has more leverage in this situation. Synlait needs A2M's vote or they are going to cease trading:

"If the $130 million payment is not made and the banks do not agree to alternative arrangements, the Board believes Synlait will need to cease trading or initiate a formal insolvency process."

At the very least, Synlait need to drop any and all objection to A2M's termination of exclusive supply rights. It's beyond the point of absurdity for Synlait to be in arbitration dispute with A2M about this while simultaneously requiring A2M's support to continue to exist. Synlait really need to stop kidding themselves.

To the broader point about leverage. People always seem to imply that the A2M-Synlait relationship is one of equal co-dependency, and conversely, mutually assured destruction. But that is not entirely true. Without A2M, Synlait is nothing. But even in a worst case scenario, without Synlait, A2M would take a huge hit but continue operating and eventually recover.

Dare I say it, there may even be a scenario where A2M allow Synlait to go insolvent in order to bring the whole situation to a head. Insolvency would force the various takeover scenarios that have been endlessly discussed on here to a head. As well as opening up Synlait's assets, including Dunsandel that A2M wants, to possible acquisition.

And here's the kicker. At the end of the day, whoever ends up owning and operating Dunsandel - whether it is Synlait, Bright, A2 Milk, administrators, China Mengniu, Nestle, etc. - for WHOEVER it is, it will continue to make a lot of financial sense for them to retain the facility's main customer, A2M, at least for the remainder of the current SAMR license period, as the SAMR registration is tied to the A2 Platinum product, and this is what ultimately gives the asset a large chunk of its value.

[Breezy]

China is a command economy.

Understand that and you will understand why A2 is a eunuch.

Babies need feeding and they command ample amounts of IF.

[Minimoke]

China is a command economy.

Understand that and you will understand why A2 is a eunuch.

Bright is part of that. Along with CSFA and CAHG.

If china wants foreign IF (which they obviously do) then they have a number of ways of achieving that.

I don't foresee a scenario where Dunsandel closes down.

[Basil]

Babies need feeding and they command ample amounts of IF.

Quite right, there's nothing like a hungry crying baby to command your attention lol
Its going to be interesting to see how this plays out.  I'm happy to watch from the sidelines with a lot of popcorn.