SML - Synlait

[Teitei]

Not correct - you have hindsight bias. The market yield on the bonds has collapsed from 170% from 65% in the last 10 days. Perceptions have changed as news has come out from a market perspective. It's not just people on this forum staying quiet.

Separately, it is not about the 'big picture' for a firm in financial distress. The 'big picture' doesn't always hold for a firm going down the gurgler.

Hindsight? Who has been posting about keeping an eye on what Synlait means to Bright? The news you refer to simply confirms what I have been posting - nothing new actually. Now that's foresight.

Versus those (including in the media) who believed A2M held Synlait's fate in its hands? What a joke!

A2M can kiss the China market goodbye and watch its business evaporate into thin air if it does not co-operate with Bright!

Here's why A2M is a eunuch :

In the interview with the Herald, Bright's Chairman said:

"Both a2 and Bright Food want to Synlait to stabilise. Without Synlait, there would not be prosperity for a2 Milk".

[Left Field]

Crikey, please tone it down folks......

[Breezy]

Crikey, please tone it down folks......

Is this a full 12 round match?

[Teitei]

Is this a full 12 round match?

Looking forward to 15 rounds myself.

[Basil]

Maybe the ref should intervene and maybe we should just wait and see what the vote is on 11 July.  Its not that far away.

[Teitei]

Maybe the ref should intervene and maybe we should just wait and see what the vote is on 11 July.  Its not that far away.

Why a ref?

Aren't we here, Beagle, to debate and argue different points of views with the aim of seeing what are the likely scenarios and outcomes from developments in a company's situations?

[Basil]

Yes we certainly are mate and I enjoy your posts but maybe it's been really comprehensively argued each way already ?

[Teitei]

Yes we certainly are mate and I enjoy your posts but maybe it's been really comprehensively argued each way already ?

Not when SSF accuses me of being a hindsight poster.

When I am wrong on something, I always front up.  It is of course better  to be right but who is always right?

And there should be no shame in being wrong - as long as we all learn something as we go along, wrong or right.

[Clearasmud]

Crikey, please tone it down folks......

No mate what we need is more open, frank  discussion.

[Crackity]

Synlait Milk has now put forward its plan, guiding the company to a crossroads and handing the decision to its shareholders.
Bright Dairy is proposing to lend Synlait Milk $130million to repay its bankers. As Bright Dairy is a major shareholder, shareholders other than Bright Dairy must now vote to agree, with a simple majority (50%) required to institute the plan. Following this vote, Synlait intends to announce a capital raising from its shareholders.
A meeting will take place on 11 July and all shareholders (except Bright Dairy) will have the right to vote to determine which path the company is sent down.
All shareholders - particularly those who also own also Synlait bonds – should exercise their right to vote. Shareholders who have elected others to vote for them should communicate with their proxy leading into the vote.
The terms of the loan agreement are crucial for shareholders to understand.
The loan facility exists for either one or two years - at Synlait's discretion - and will cost 8% for the first year. If Synlait chooses to extend the loan to a second year, it will be refinanced at a rate based on the underlying interest rates at the time, with an added margin. 
The cost of the debt, including the margin, is clearly much lower than market rates, especially for the security associated with the loan. 
The $130 million being lent by Bright Dairy is subordinated behind bank debt but ranks ahead of the listed bonds (SML010) in the event of default. Bondholders are effectively ceding $130 million of priority, should the company default.
This means a shareholder with $2,000 worth of shares and $20,000 of face value of the bonds may have a more difficult decision to make than the same shareholder without a holding in the bonds. 
If the proposal fails to achieve the necessary shareholder support, Synlait has indicated that the company will need to immediately enter into negotiations with its banks. If these negotiations fail, Synlait's board believes the company may need to begin the insolvency process.
Getting to a 50% threshold in either direction may largely hinge on how its largest eligible voter – a2 Milk with 33% - chooses to vote.
A2 Milk's priority will be making a decision that adds the most value to its own shareholders. At the current share price of Synlait, a2 Milk has about $10 million worth of Synlait shares. A2 Milk is worth $5.1 billion dollars, at current pricing. A2 Milk has not yet provided any clues as to its intentions.
Accompanying the announcement was confirmation that a rights issue is likely to follow the vote and may be announced as early as August.
No shareholder should be surprised by this. The company has been very transparent regarding the need to raise capital, and those who have remained shareholders to this day should be well prepared for a further capital injection. 
The terms of this offer will be important. The current share price of around 20 cents leaves little room for incentivisation, unless the offer is creative in its structure. 
There is another aspect to a potential rights issue that warrants discussion.
Bright Dairy has confirmed it will participate if a rights issue proceeds. A2 Milk has made no such public commitment. If a2 Milk does not participate, and investor participation is poor, there is a possibility that the Bright Dairy shareholding drifts over 50% of the total company. It is currently 39%.
If this occurs, it will trigger a ''Change of Control Event'', and grant bondholders the right to immediately call the debt. Synlait has publicly stated that it expects bondholders to take this option if it is presented to them, and Synlait will take steps to prepare for such an outcome.
Synlait did not mention any OIO implications involved with such an outcome.
Both Bright Dairy and a2 Milk will be aware that this is a probable eventuality if a capital raising plays out as described. 
The market reaction to the announcement by Synlait was interesting and diverged significantly between the two investor classes.
The share price fell to fresh lows, falling to 20 cents and a market capitalisation of 45 million. 
Meanwhile, the bonds saw a resurgence of support, with a flurry of buyers emerging. With the bonds trading at around 65 cents in the dollar and sentiment seemingly changing week to week, the situation remains very volatile.
The first step for shareholders will be the vote. Bright Dairy cannot participate in the vote, and a2 Milk's intentions are, as yet, unknown. If a2 Milk does not vote in favour, the vote can still pass. However, it would require significant support from ordinary shareholders.
Shareholders have been warned that failure to pass the measure could result in insolvency, and total loss of value.
Bondholders without any shares will simply have to watch from the sidelines, as a new lender jumps the queue.
If the vote passes, the conversation will then turn to a potential capital raising. Shareholders should also be preparing for this outcome in the months ahead. 


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Chris Lee website yesterday

[Left Field]

Banks helping SML to a CR

https://api.nzx.com/public/announcement/433862/attachment/421998/433862-421998.pdf

[Teitei]

Banks helping SML to a CR

https://api.nzx.com/public/announcement/433862/attachment/421998/433862-421998.pdf

Forgone conclusion, I would have thought?

Synlait has been as transparent about its financial issues as any company could ever be!

[BlackPeter]

No mate what we need is more open, frank  discussion.

Open and frank fact based discussion about issues is good.

What we don't need is mudslinging and attacks on the player instead of kicking the ball.

Some people find it difficult to distinguish between hitting the ball and kicking the player.

[Teitei]

SML sp on the move - 27c vs low of 20c last week.

Must hand it to SB888 who braved the doomsday merchants and bought last week.

Not for me - I prefer to wait for the CR.

Only issue is that the CR rights may not be tradable and that would be a bummer.

[Clearasmud]

SML sp on the move - 27c vs low of 20c last week.

Must hand it to SB888 who braved the doomsday merchants and bought last week.

Not for me - I prefer to wait for the CR.

Only issue is that the CR rights may not be tradable and that would be a bummer.

If you want to participate in the capital raise isn't it better to buy a position early.