SML - Synlait

[bulltrap]

Market closed today at $0.395. Lets see what happens tomorrow.

The ASX was still open when the announcement hit. It went to almost NZ$0.49 before closing around NZ$0.46.

ASX spread is showing after-hours as NZ$0.395-$0.49.

Let's see what the NZX makes of it. My guess is it'll open strong above NZ$0.50 but soften when the ASX opens - anyway, that's what happened with KMD's positive announcement today, could be a pattern.

(Disc: rubbernecking)

[Minimoke]

Ok. Now lets look on the bright side.

In December 2023 we had the last set of wheels fall ff. Just before they did the market, with 218,581,661 shares on issue valued Synlai at $284m ($1.30 a share)

There will be now 603,194,064 shares on issue. The arbitration with A2 is over. The bank has been paid back its $130m. Bond holders will get  their $180m back. So the company is in at the very least the xame position as it was in December. So if the market is going to reset at that value SP will be $0.47

If we go back a further year to Dec 2022 market value SML at $743m. ($3.40 a share) Very roughly the value of its fixed assets. If the market rerates to this level SP will end up being about $1.23.

[CG]

I agree $218m is not enough.  Gross debts to non-bond holders at the half year report were $411m.  Would they be happy getting $38m after bondholders get $180m?  Accordingly I don't think we have heard the last of how this will play out given the quantum of debts was the issue.  I also expect to see some hefty write offs in the full year report.

They are not trying to repay all debts. They are trying to reduce it to the level where they will be able to refinance it. Also do not forget $24m settlement payment from A2M and $130m loan from Bright. If all goes to plan their debt to banks will be half of what it was and much easier to refinance.
I think they were quite clear in their statement:
"The equity raise will only complete if it does so concurrently with the refinancing of Synlait's bank facilities. The equity raise, the settlement with a2MC, and the bank refinancing are inter-conditional and therefore must all be approved and occur contemporaneously (or substantially contemporaneously) with each other, or not at all. Completion of all three components is expected on 1 October 2024."

[Basil]

Market closed today at $0.395. Lets see what happens tomorrow.

Also. I dont think the $217.8m is  nearly enough. $180m of that goes straight to bond holders. Leaving just $37.8 to otherwise help cashflow. And why .8m. Why not round it up to raising $220m? The raise is quite the specific number.

Our friend Balance who called this right will be happy.  ATM just kowtowing to their Chinese overlord as he correctly predicted.

[BlackPeter]

I suspect that whatever they do it will be good for the big boys. Do they want renounceable rights issues (which would be fair, wouldn't it)? Hardly. Probably a big fat institutional placing and some crumbs afterwards (underwritten by Bright or similar) for the plebs.

Looks like I was too optimistic for the retail shareholders. They even kept the crumbs for the big boys.

I guess I still made some money buying back into them, and can use the funds reserved for the CR certainly in other ways as well.  However - looking at Synlait as a longterm investment, this is now clearly a a no-no.

The board never looked after the interests of retail investors, and the recent CR and subsequent board changes will only further harden this stance. Synlait is now to 2/3rd (which means fully) controlled by the CCP, and they clearly won't worry about aligning their agenda with the agenda of NZ retail investors.

Just wondering - given that Bright Dairy is further increasing their share (and they are sitting well above the 20% threshold anyway) - would they not have to make a full takeover offer?

[Minimoke]

They are not trying to repay all debts. They are trying to reduce it to the level where they will be able to refinance it. Also do not forget $24m settlement payment from A2M and $130m loan from Bright. If all goes to plan their debt to banks will be half of what it was and much easier to refinance.
I think they were quite clear in their statement:
"The equity raise will only complete if it does so concurrently with the refinancing of Synlait's bank facilities. The equity raise, the settlement with a2MC, and the bank refinancing are inter-conditional and therefore must all be approved and occur contemporaneously (or substantially contemporaneously) with each other, or not at all. Completion of all three components is expected on 1 October 2024."

I didt read teh $24m as being a settlement payment.  SML said "The a2 Milk Company will make a one-off payment to Synlait in the order of $24.75 million. That payment includes amounts that had largely been withheld in accordance with the terms of the NPMSA from payment pending resolution of matters in dispute." So i see this as an item that was sitting in the Accounts Payable line. It was money owed, but disputed. Dispute is now over so it is payable. It will help cash flow. But that's all.

I think teh market has already factored in teh $130m loan from Bright. This loan did nothing to the balance sheet as it just swapped one loan for another. All it achieved was making the banks happy. Given Brights willingness to recapitalize SML I don't think they are in any hurry at all to see this money back. They will just take the interest payments for quite some time yet.

I dont see the banks having any issue with refinancing. Bonds are paid off. Total debt to realisable value of assets is stil comfortable

Total debt was
$180m Bonds
$309 Banks
$589.7 total

Total debt in December will be
$130 Bright
$179 Banks
$309m total.

Thats a $280m improvement. And $130m of that Bright isn't worried about.,

[Minimoke]

Looks like I was too optimistic for the retail shareholders. They even kept the crumbs for the big boys.

I guess I still made some money buying back into them, and can use the funds reserved for the CR certainly in other ways as well.  However - looking at Synlait as a longterm investment, this is now clearly a a no-no.

The board never looked after the interests of retail investors, and the recent CR and subsequent board changes will only further harden this stance. Synlait is now to 2/3rd (which means fully) controlled by the CCP, and they clearly won't worry about aligning their agenda with the agenda of NZ retail investors.

Just wondering - given that Bright Dairy is further increasing their share (and they are sitting well above the 20% threshold anyway) - would they not have to make a full takeover offer?

I bought back in at $0.33 and market opened today at $0.45.

I still think SML is uninvestbale. There is no chance of a dividend. It is still going to need more capital. Its still has anchors like Pokeno dragging it down.

It is clear Bright have zero interest in retail investors. And A2 have a track record of having little concern for their shareholders.

But since I'm in I'll ride this a bit longer. Getting rid of Dairyowrks may still be on the cards. Doing something positive with pokeno may still have some upside.

[BlackPeter]

A very weak board to not give retail shareholders the chance to buy in.

Yes.

...

That said I see it differently to others.

...

I'm going against the crowd here and saying I think this is not a completely terrible deal.  Not sure how they will fund all the early bond redemptions?
Have they raised enough?

I guess from a traders point of view you are absolutely right, and given I bought in together with you I am sure I can appreciate this view. Didn't expect my new Synlait liaison to be that short, though - but it certainly looks to be financially rewarding.

What I find disappointing is that the board happily surrendered another (once promising) NZ company and sold it out for a song, but hey - this is life.

As an investor - I didn't expected Synlait to move back anytime soon to its IPO price (around $3) or even higher, but I think they had a good chance to turn (after getting rid of Pokeno) Synlait into a profitable and sustainable NZ company, providing good jobs for the region and benefits to NZ. Sure - they still might turn it into a profitable company, providing food for China - but not quite sure how high on the minds of the Beijing CCP office the well being of NZ employees and NZ interests will rank.

This is why I see the development as very disappointing.

[Basil]

BP. Agree from a philosophical perspective but Beagles mainly care about their dog food and anything is fair game including chasing down old worthless nags like this. Penno should hang his head in shame.  This has been an absolute disaster for retail shareholders in terms of its original listing price, which from memory was $3 and its never paid a dividend once in over ten years and then the CCP is allowed to walk all over retail shareholders, aided and abetted by ATM.  Some old nags deserve to be sent to the glue factory...this is probably a good case in point.

How I look at it from an economic viewpoint is that at least it keeps going, people with their weird and wild LGTPQ ways stay employed rather than demonstrating along Queer St, opps sorry Queen Street, that their dole cheque isn't enough and there's some competition for "Fonterror".  I suppose that's "a win", of sorts.  The other win is that Universities around the country who run investment analysis courses will have an excellent case study for their students for the "wonderful" benefits of ESG extremism.  Enough material in that case study to fill up the study books of students for a whole semester.

[Minimoke]

BP. Agree from a philosophical perspective but Beagles mainly care about their dog food and anything is fair game including chasing down old worthless nags like this. Penno should hang his head in shame.  This has been an absolute disaster for retail shareholders in terms of its original listing price, which from memory was $3 and its never paid a dividend once in over ten years and then the CCP is allowed to walk all over retail shareholders, aided and abetted by ATM.  Some old nags deserve to be sent to the glue factory...this is probably a good case in point.

How I look at it from an economic viewpoint is that at least it keeps going, people with their weird and wild LGTPQ ways stay employed rather than demonstrating along Queer St, opps sorry Queen Street, that their dole cheque isn't enough and there's some competition for "Fonterror".  I suppose that's "a win", of sorts.  The other win is that Universities around the country who run investment analysis courses will have an excellent case study for their students for the "wonderful" benefits of ESG extremism.  Enough material in that case study to fill up the study books of students for a whole semester.

Someone will write an excellent text book on business management with Synlait  being the case study. All we have seen yesterday is another very interesting chapter being written.

[BlackPeter]

Just for full disclosure - I am out again.

I really bought back into this share last week with expectations of a long term hold and support of a local company, but given the changes not interested to be now part of a 15% minority whose interests count nothing for the board.

Pity - I will miss the AGM's. They all have been in interesting venues. A vineyard near West Melton, their Dunsandel factory and a couple of times in a nice and new Tait building in the Western parts of Christchurch. I might miss the team exercise of clapping for boards and managements amazing achievements. Things looked bright in 2017/2018. These were the times. 

I probably won't miss the long Te Reo introductions at the AGM which nobody including the speaker understood, and I definitely won't miss the announcements headed in pink letters. Not really my choice of colour for business communication.

Discl: long term holder from 2014 to 2018 ... and short term holder for a couple of days this month.

[Minimoke]

Just for full disclosure - I am out again.

I really bought back into this share last week with expectations of a long term hold and support of a local company, but given the changes not interested to be now part of a 15% minority whose interests count nothing for the board.

Pity - I will miss the AGM's. They all have been in interesting venues. A vineyard near West Melton, their Dunsandel factory and a couple of times in a nice and new Tait building in the Western parts of Christchurch. I might miss the team exercise of clapping for boards and managements amazing achievements. Things looked bright in 2017/2018. These were the times. 

I probably won't miss the long Te Reo introductions at the AGM which nobody including the speaker understood, and I definitely won't miss the announcements headed in pink letters. Not really my choice of colour for business communication.

Discl: long term holder from 2014 to 2018 ... and short term holder for a couple of days this month.

I havent been to a meeting since that terrible one when Clements decide to go full te reo in front of the Chines board members with literally no maori in the crowd.

Anyway, I may just hold on if for no other reason to go to another meeting

[Teitei]

Kudos to you Balance..... you have read the SML saga very well and I'm sure your bond investment will be richly rewarded. Well done.

Thanks, Left Field.

I had continued adding onto my bond holding and am pleased that my credit assessment skills and experience have served me well. 

As I said to my fellow investor over coffee this morning, ours is a poorly analysed and assessed market so opportunities to make exceptional returns do present themselves from time to time. And when they do, one has to be prepared to go against the market and make it worthwhile.

Pity the CR via rights issue is not happening as I would have loved to be able to invest via buying during the rights trading period but such is life.

Onto the next opportunity.

[Basil]

Just for full disclosure - I am out again.

I really bought back into this share last week with expectations of a long term hold and support of a local company, but given the changes not interested to be now part of a 15% minority whose interests count nothing for the board.

Pity - I will miss the AGM's. They all have been in interesting venues. A vineyard near West Melton, their Dunsandel factory and a couple of times in a nice and new Tait building in the Western parts of Christchurch. I might miss the team exercise of clapping for boards and managements amazing achievements. Things looked bright in 2017/2018. These were the times. 

I probably won't miss the long Te Reo introductions at the AGM which nobody including the speaker understood, and I definitely won't miss the announcements headed in pink letters. Not really my choice of colour for business communication.

Discl: long term holder from 2014 to 2018 ... and short term holder for a couple of days this month.

It's certainly been a fascinating case study in all things ESG extremism, that's for sure as well as a fascinating train wreck to follow over recent years.  Balance has also given us a free lesson in the power of the CCP in terms of its overlord position even while they're holding without a majority stake.

Like you, I have no interest in staying on board with a company controlled by a company that is controlled by CCP who have a long track record of treating minority shareholders with complete disdain and contempt and the "so called" independent directors here have acted with no thought or care for minority shareholder interests either and that's not going to change going forward.  If anything, with Bright's 65% it's only going to get a lot worse, and the "independent" directors are merely puppets on a string.  Its truly pathetic to watch.  As for the so called independent Northington report, just as well it's in electronic form because nothing I have read from them in the past has been worth the paper it's printed on.  They just report whatever the person paying the bill wants them to report.   Happy to have got my tummy filled here with another reasonable feed and moved on to the next opportunity. 

[Breezy]

Reckon there will be good support around that 43c mark being the A2 discount price, should trade between this and 50c for a while, looks like more fun to be had for some time yet.