SML - Synlait

[Minimoke]

Plenty of time.

An underwritten CR takes less than 1 month to be completed. The devil is on the structure of the CR so that 'certain' parties can best benefit from the CR.

Another scenario my contact in one of the China banks operating here is that the bank debt will be refinanced by overseas banks.

That may be the bank debt sorted. But it is still debt. Will these White Knights provide enough finance to give Bond Holders comfort?

[Sideshow Bob]

Still no word on any Dairywork sales etc......

[Goob]

Good points.

1.  A deal will obviously only happen with Bright Dairy which one assumes will be happy to agree if they do not want to put in more money into Synlait. This is not my view as I believe the Chinese take a long term view.

2.  The SAMR registration attaches to the Dunsandel plant so presumably with the close ties between China entities and government, if 1 above is forthcoming, then 2 will happen.

Here's what Synlait says :

" Synlait continues to hold the Chinese regulatory State Administration for Market Regulation (SAMR) licence which is attached to Synlait's Dunsandel manufacturing facilities. The licence is for The a2 Milk Company's Chinese labelled 至初® Infant Formula (stages one, two and three), the company expects to manufacture those products for The a2 Milk Company for products destined for the China market for the period of that licence (currently expiring September 2027)."

According to a broker report & their discussion with an industry insider it would be 'fairly straightforward' for a new company that acquires Dunsandel (ATM included) to transfer and rebrand the SAMR slots to the new company's product. It would only need 'some' regulatory sign-offs.

So it's a huge risk to ATM if another IF company buys Synlait and takes over the license i.e. leaving an enormous earnings hole at A2.

[Minimoke]

According to a broker report & their discussion with an industry insider it would be 'fairly straightforward' for a new company that acquires Dunsandel (ATM included) to transfer and rebrand the SAMR slots to the new company's product. It would only need 'some' regulatory sign-offs.

So it's a huge risk to ATM if another IF company buys Synlait and takes over the license i.e. leaving an enormous earnings hole at A2.

unless Atm (as 20% shareholder) buys it out.

[Left Field]

Ouch for holders

https://www.nzx.com/announcements/425973

[winner (n)]

Ouch for holders

https://www.nzx.com/announcements/425973

.

Things seem to be getting worse

[BlackPeter]

.

Things seem to be getting worse

Well, yes - and the key message seems to be "The HY24 result remains subject to review procedures by Synlait's auditor, and the range excludes any additional adjustments, including accruals, provisions, and impairments, which are still being assessed.", which clearly means - all bets are off.

Anybody counted how many downgrades they already had? No matter whats the number, it sounds they are confident that there is more to come ;

While I don't share all the cynicism around BCorp ... it clearly appears that this board forgot over all the excitement of a new paintjob that the most important ingredients for a safe and successful journey are good vehicle maintenance, a skilled driver and above all some sensible decisions where to go.

[Minimoke]

Net loss now expected to be in the region of $17 - $21m. (From $4.5m loss last year). Full year now expected to be flat or down on last year.

A couple of thoughts.
- SML now has to be totally, absolutely 100% un-investible
- FY24 guaranteed to be a loss. Only question is how much (they have to recoup $17 - $21m to at least break even.
- No profit = no extra cash in the bank = no extra ability to repay at least $130, by 31 March
- I can smell bond holders sweat from here.
- Given loss, cash flow has to be really constrained. Ability to pay banks interest has to be questionable. Do they even have enough cash to pay staff? Are they actually still a trading concern?

[Minimoke]

Also interesting to note zero mention of the Dairyworks sal.

Instead we get this. "The Board and Management are actively working on the need to deleverage Synlait's balance sheet as a priority. Synlait will provide an update when it releases its HY24 result in March."

What other family silver does SML have?

Since they sold their Auckland facility, as I recall they only have Pokeno and Dunsandel left as significant assets

Edit. Market opens at $0.78, giving a Market Cap of $179m

[Sideshow Bob]

Fonterra also announced today a lift in farmgate milk pricing from $7.50 to $7.80 as the midpoint.

[Minimoke]

Fonterra also announced today a lift in farmgate milk pricing from $7.50 to $7.80 as the midpoint.

Synlaits is currently $7.50. So increased costs already.

And will need to match fonterra to keep farm supply. (My A2 milk that sits in my fridge is Anchor / Fonterras)

[Teitei]

Sp should really be down now to 50c.

And that would suit some parties very very well!

[Basil]

Another downgrade...there's a BIG surprise lol
More to come, you can bank on that.

Well, yes - and the key message seems to be "The HY24 result remains subject to review procedures by Synlait's auditor, and the range excludes any additional adjustments, including accruals, provisions, and impairments, which are still being assessed.", which clearly means - all bets are off.

Gosh the auditors will be feeling they need to do a very thorough job this year.  I can see the definite prospect of a qualified audit report stating going concern risks.  Anyone who doesn't think this company is now in a battle for its very survival, is not reading the situation at all.

[Minimoke]

Its a funny old world that we can reflect on from time to time. Back in Sept there was chatter about the need for a capital raise if dairy works didn't sell. SP was around $1.20 back then.

When SML did its last $200m cap raise it did so at a 15% discount on share price.

So if a cap raise had been done then it might have been done at around $1.02

Today SP is trading now at $0.70. So if the same 15% rule applies we are looking at an SP of $0.595. Which makes @teitei post look quite realistic.

And at $0.595 this would give SML a market cap of $130m. Which coincidentally is the same amount the banks want by the end of March.

[Teitei]

Its a funny old world that we can reflect on from time to time. Back in Sept there was chatter about the need for a capital raise if dairy works didn't sell. SP was around $1.20 back then.

When SML did its last $200m cap raise it did so at a 15% discount on share price.

So if a cap raise had been done then it might have been done at around $1.02

Today SP is trading now at $0.70. So if the same 15% rule applies we are looking at an SP of $0.595. Which makes @teitei post look quite realistic.

And at $0.595 this would give SML a market cap of $130m. Which coincidentally is the same amount the banks want by the end of March.

If there is a CR, count upon one which will be like that of Sky TV - could be rights to buy at 15c.