SML - Synlait

[Minimoke]

I'm getting the sense A2 is in the process of trying to hoover up all the assets of value held by SML - eg the Some IP. Securing long term supply contracts at agreed margins while they get Matuara up and running.

And they will do this before Synlait call in the receivers. At which point Bright Dairy will take over the remains. Similar to what happened with the West Coast Coop milk company being taken over by the Chineese.

[Basil]

A lot of dark clouds hanging over this company as we head into 2024.

[BlackPeter]

It seems the relationship with their major customer is severely harmed. And no positive light on the sale of Dairyworks.

I wouldn't be surprised if the A2M claims succeeded. I reckon Synlait management have been too busy fussing around with their B Corp Accreditation to notice compliance issues with their no one customer.

And I don't like the worlds " a deleveraging plan". Seems to me financiers have had enough. What this probably mean is the banks insisting on a major "de-risking plan". It looks to me like they arent going to make the required $130m pre-payment.

And what does this mean "Working to significantly reduce debt levels which remain elevated,including the NZX listed bonds." Does it mean another cash raise through bonds is on the table. Gee - I'd be extremely worried if I was an existing bond holder. No way I could be encouraged to become a new totally unsecured future bond holder.

For me, any light of hope at the end of the tunnel appears to have been snuffed out. Synlait are now untouchable under any circumstance.

Agree in principle ... though, the company will have value to some. Question is just whether these people prefer to buy the company as is, or alternatively whatever is left (IP, supply lines, milk factories) after its going down.

What I don't understand is how the relationship between SML and A2M could get into such a corner. Sure - partners do have their quarrels as well, but at this stage I see neither SML nor A2M benefitting from this mess. Either they are both just puppets in the hands of the people who really pull the strings and at the end neither care about SML nor A2M, or shareholders elected to be represented by a bunch of muppets.

Sadly - both might be true.

I recon both A2M as well as SML just show what hype can do to any share price.

[Basil]

Sadly both might be true and probably are, but I lay the blame squarely at the board of Synlait.  For many years now they have vigorously pursued all things B Corp and acted like people and the planet are more important than profit.  Look where that's got them.

[snapiti]

crickey A2 response is brief but confident....all these issues going forward and SML have to find $130m end of march 2024 to satisfy bankers, can not see the possibility of any resolve before then....cap raise at what price given the risks 50 cps on a prorata basis

[Basil]

Slight little nuance nobody has picked up on that gives a vital clue to the pressure Synlait are under from their banking syndicate.  Pretty sure previous press releases have refferred to $130m being required.  Now the use of the two extra words "at least" give an insight the banks are demanding action and see $130m as the absolute bare minimum.

• Engaging with its banking syndicate about a deleveraging plan and the required prepayment
 of at least $130 million, which is required by 28 March 2024.

Emphasis added
Who'd be game other than Bright Dairy to sink more money by way of a cash issue into this mange infected mutt?
Tick Tock...the clock is ticking loudly.  Hope all the endless hours of executive time on reaccreditation of B Corp status didn't divert them from their task at hand.  I suspect it has and as usual they just fiddle while Rome burns.

[Ferg]

And what does this mean "Working to significantly reduce debt levels which remain elevated,including the NZX listed bonds." Does it mean another cash raise through bonds is on the table. Gee - I'd be extremely worried if I was an existing bond holder. No way I could be encouraged to become a new totally unsecured future bond holder.

Nice catch.  My interpretation is they want to reduce debt, and that debt includes the bonds.  IMO the motivation for reducing the bond debt is the current 15% discount to redemption value.  This would be a great win for an entity that is a going concern - whereas for an entity that was not a going concern it wouldn't be on their radar.  But to take advantage of this discount, they need cash.....and as you say, where is that cash coming from?

[Ferg]

SML could  possibly redeem early but it would be at par so doesn't really help  the company.

Agree re the yield & market messaging but with the part I quoted...(I think) I have seen US companies buy back their debt at market rates and bank the gain, instead of redeeming early.  Can NZ companies not do this?

[snapiti]

Slight little nuance nobody has picked up on that gives a vital clue to the pressure Synlait are under from their banking syndicate.  Pretty sure previous press releases have refferred to $130m being required.  Now the use of the two extra words "at least" give an insight the banks are demanding action and see $130m as the absolute bare minimum.  Emphasis added
Who'd be game other than Bright Dairy to sink more money by way of a cash issue into this mange infected mutt?
Tick Tock...the clock is ticking loudly.  Hope all the endless hours of executive time on reaccreditation of B Corp status didn't divert them from their task at hand.  I suspect it has and as usual they just fiddle while Rome burns.

this just goes to show the hounds/beagles nose is working well, sniffing out small but vital word changes in ann's like this and choosing to share.....thankyou

[snapiti]

jeez I bet they are desperate to sell off a good asset, if they don't the cap raise will have to be exceptionally attractive

[Buzz]

Agree re the yield & market messaging but with the part I quoted...(I think) I have seen US companies buy back their debt at market rates and bank the gain, instead of redeeming early.  Can NZ companies not do this?

I don't know how they're going to get out of this mess, but what I do know is that there are very very strong vested interests that will not want, or let, Synlait fail, not completely anyway.

Banks, Bright Diary, ATM and Synlait themselves, all have massive vested interest in their ongoing production and viability. It's really imo just question of who ends up owning Synlait, and on that basis we can consider which of the vested parties have the most interest, individually or in partnership.

That would be ATM imo, as Synlait have the SAMR which would be a disaster for ATM to lose access to, shutting down their supply to their China market.

Bright Diary stand to lose the most though, as they are big into Synlait and ATM, so it makes sense that they could be an underwriting party to any deal that keeps Synlait afloat, regardless of the ownership structure. Both Bright through their China Govt ownership, and ATM, have clear ambitions to "own the supply chain". The ATM Chair laboured this point at the recent AGM.

So, drawing a long bow, it wouldn't be beyond consideration that ATM being the mouthpiece and Bright Diary backing them, that they are going after the best (lowest) possible price for Synlait that they can get. They are sticking it to Synlait when they are already down. Look at the fear in the Synlait announcement, vs the confidence, almost disdain in the ATM response.

Why else would ATM, at this time, hold their strategic supplier to account, unless they are setting up a takeover play of a distressed and vulnerable key supplier?

[Basil]

The terms of the bonds are here in the product disclosure statement.  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SML/345177/313032.pdf
I note they are subordinated and rank behind all bank debt and other preferred creditors.
These corporate bonds are now right at the extreme risk end of the spectrum.  The rate could easily blow out to a lot more than 20%.

Capital raise looking more likely now.  https://www.nzherald.co.nz/business/capital-raise-looms-for-synlait-as-dairyworks-sale-stalls/T36WZ5JXOJHFNIYBZDGOEVAVVY/

Comment: I note discussions with interested parties for Dairyworks have been ongoing for quite some time now.  You would think if they could get onto the same page or a very similar page a deal would already have been documented and disclosed by now.  Mexican standoff over price ?
Beggars can't be choosers and they are distressed vendors.  They either take whatever they can get for Dairyworks, or another major asset or they undertake a deeply discounted rights issue. 

[Minimoke]

Lets not forget that A2 have a very large war chest of cash that they have constantly refused to use. Maybe they have been keeping it for a rainy day. And as mentioned below the black storm clouds are brewing.

[snapiti]

going to be an interesting watch from the sidelines, company will have to do a cap raise to pay back debt in March, Bright dairy and A2 strong shareholders and are in total control of this one.
Maybe in both their best interest to let this almost fail before making themselves look like white knights to the rescue, one way or the other the company no longer in control of it's own destiny unless they can sell some assets and fast.
Seen this sort of scenario play out a few times before with retail investors the real losers, doubt whether the SP is anywhere near the bottom

[Basil]

I learned from the 1987 stock market crash never to trust Chinese controlled companies.  Minorities are almost always the loser.  Back when Penno was CEO and their debt was a lot lower this had a chance...now they trade at the behest of their bankers and major shareholders.  This has all the makings of a complete train wreck for minority shareholders.