SML - Synlait

[Basil]

Which is why I think a JV ultimately makes the most sense here, but a No vote by A2M on the loan is required in order to get there.

Which may leave the bondholders hung out to dry in the bitter cold.

[Teitei]

Crikey.....The silence from A2M is deafening.

Another viewpoint to consider....... from Werdplayer on HC

Whichever way A2M votes, there really is no need for them to disclose this to Synlait beforehand. It would be a courtesy that Synlait has not earned. Synlait should have dropped the exclusivity matter long ago, it has only done them a lot of damage and continues to do so.

As I've said for some time, I really don't think Bright would ever allow Synlait go under. Full stop. Their comments recently seem to confirm this. It is also unlikely they would relinquish control of Synlait and its Dunsandel facility.

If you accept this, then it also follows that A2M's supply remains secure in the likeliest scenarios where they do not approve this loan.

Not approving the loan will then set in motion the negotiations between A2M and Bright about takeover scenarios for Synalit. Either a bidding war or a JV.

Even if Bright were to acquire effective ownership of Synlait they would still need A2M as a customer to make it financially viable. Their higher ups are not going to sign off on a takeover of Synlait without retaining the business that A2M brings.

And if A2M were to take a greater stake, they would presumably rather retain the mutual cooperation and investment of Bright as a partner, given how capital intensive manufacturing is (particularly in light of Synlait's problems).

Which is why I think a JV ultimately makes the most sense here, but a No vote by A2M on the loan is required in order to get there.

Collusion by Bright & A2M (2 shareholders controlling 60%) to control and takeover Synlait at the expense of minorities?

Wow!

That will go down really well with ASIC!

Forfeiture of their Synlait shares as well as multi-million fines if history is any guide.

[Teitei]

Bright could not have been and cannot be more transparent than with their rescue package and plans for Synlait.

All the postings about conspiracies etc etc - that's not how the Chinese state & government owned entities operate.

Those who believe A2M will vote NO should be shorting the hell out of A2M and SML - because A2M will be history in China.

From Professor Jeffery Sachs of Columbia University :

"When I speak with Chinese senior officials, which I do often, they are the best prepared professionals I know in the world. When I deal with them, they know their brief."

And from the very top official in Bright :

https://www.nzherald.co.nz/business/synlait-can-recover-chinas-bright-dairy/CD4OAZYKZVGVDISAFWATJIWKN4/

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".

[Teitei]

606k shares traded today - some keen position taking ahead of Thursday vote.

Heck, some even paid up this morning to get stock!

A 10 bagger sometime in the future?

Would have been $7m+ turnover once but now, just $154k.

"Who dares wins!"

[Breezy]

Worth a punt I reckon, even a 2 bagger would be fine.

[Teitei]

Worth a punt I reckon, even a 2 bagger would be fine.

Better to wait for the CR to come.

[Left Field]

606k shares traded today - some keen position taking ahead of Thursday vote.

And over 900k ATM traded.....

[Teitei]

Someone just paid up again this morning to get some stock.

Do they know something or just punting?

https://www.nzherald.co.nz/business/...AILFOQPJELD4E/
paywalled

Adams is encouraging all shareholders to vote. Even if a2 votes against the proposal, other minority shareholders could see it through. A2 Milk, and the balance of minority shareholders, represent 61% of the shares that can be voted at the meeting.

"They [a2 Milk] are under no obligation to tell us what they are going to do," Adams told the Herald.

"It would be great to know, but ultimately they are not obliged to owe us a duty that says: you must tell the company which way you are going to vote."

"It means that if a2 Milk did vote against it, you would need 60% of the balance of shareholders to turn up and vote," Adams said.

"What I have been saying to our other shareholders is that ultimately, you don't want to die wondering on this one," he said.

Adams said a failed vote would put directors in a difficult position.

"We know that we have a loan falling due on July 15 which we would be unable to pay, and that pushes you into effectively having to decide with the banks whether or not they are willing to give you any relief from that repayment, which is not beyond the realms of possibility, all the way to voluntary administration.

"But if you are trying to get money into the business and the shareholders say no, then that pretty much is your answer."

Adams said the proxies that have come through so far were "overwhelmingly in favour" of the deal.

[Basil]

Bonds trading at 77%, (75 cents in the dollar).  Punting that there's better than 3 chances in 4 that the bonds will be repaid in full. Wow, that's either very brave or very foolish, only time will tell which.

[Teitei]

Bonds trading at 77%, (75 cents in the dollar).  Punting that there's better than 3 chances in 4 that the bonds will be repaid in full. Wow, that's either very brave or very foolish, only time will tell which.

Is that how the equation & odds work with fixed interest securities?

So what was it saying when the bonds were trading at 200% a few weeks ago? 

[Basil]

Is that how the equation & odds work with fixed interest securities?

So what was it saying when the bonds were trading at 200% a few weeks ago? 

Its a moving target as the yield to maturity is wrapped up in the duration to maturity and being a very short bond that has changed a lot over the last few months.  A few weeks ago when the bonds were trading at 170% the market pricing was just under 50 cents on the dollar, i.e. 50/50 outcome.

It seems like there's been a serious shift in the risk appetite either through ignorance or deliberate choice because (and using TAB odds to illustrate my point better), a gamble paying $2 (50/50 odds), has now shifted down to $1.33 ($4 back for every $3 risked).

As any punter knows, that's a pretty seismic shift in the odds not forgetting that for the bonds to be repaid, first we need the $130m loan to be approved as well as a very sizeable capital raise to be executed successfully, (two sequential events), as well as banks being keep happy in the meantime and Bright Dairy overlords being happy to underwrite the capital raise, (presuming they're the only ones prepared to do this).

Given ATM have not even confirmed they will vote in the affirmative for the $130m loan arrangement, I think $1.33 is very poor odds for the risks that clearly present, not forgetting that the bonds are deeply subordinated and completely unsecured.   I hope it works out for you mate; I really do but I don't like those odds at all.

[snapiti]

Which may leave the bondholders hung out to dry in the bitter cold.

Putting aside all the business posturing, on the face of it ATM have to agree to Brights loan or it would be business suicide I would have thought.
I am somewhat surprised how well ATM shares have held up given how detrimental SML going broke could be for ATM product production and feed into China.
The way I see it all posturing aside ATM have 2 options and only one really works.
1. Agree to the Bright loan and then decide whether to participate in a cap raise or not.
2. Don't agree to the loan, SML goes belly up, ATM lose any say in the matter, have to fight for the scraps of the business along with other market participants, in the meantime could lose access to China market and production of their products.

Lets not forget ATM need to look after their own shareholders, would be interesting to explain to their own SHers why they thought it would be best to let SML go broke

Forgone conclusion ATM will agree to the loan

[Basil]

We'll know tomorrow!  I bought an extra-large amount of popcorn just for the occasion lol

[SemiStrongForm]

The risk on the bonds is also non-binary to the extent that partial recovery of face value is possible during a liquidation proceeding. In my mind, so long as the shares are trading above zero, there it equity value that is above zero and the bonds should be paid out. At least that it what the market is saying.

[Teitei]

We'll know tomorrow!  I bought an extra-large amount of popcorn just for the occasion lol

You seriously believe that A2M will commit corporate hara kiri by voting against Bright's loan and put SML into receivership?