SML - Synlait

[Teitei]

I haven't seen any strategy that provides for the repayment of bonds. If there is one I'd be interested in seeing it.

From everything I read from you, you believe SML will default on repaying the bonds?

Means the shares go to zero first.

Therefore, you should be shorting the heck out of them - surely!

[Basil]

Chart on SML and SML010 looks pretty ominous.  At 30-40 cents on the dollar I think SML010 could be worth a very small and highly speculative punt assuming they can somehow jump the $130m debt repayment hurdle that's right in front of them.  That's how I see it.

[lorraina]

If I wanted to loose capital I would speculate in a loss making poorly managed business with a huge debt burden.
SML fits the bill perfectly.
.

[Minimoke]

From everything I read from you, you believe SML will default on repaying the bonds?

Means the shares go to zero first.

Therefore, you should be shorting the heck out of them - surely!

A  bond default trigger is now only 14 working days away. One of the default events is failure to pay at $35m when due. Synlait have a mandatory $130m due for repayment by 31 March 2024.

At year end we know they only had $10.3m cash on hand and currently running at a multi $m loss.

A default event doesn't automatically trigger a liquidation event - that's the discretion of the Bond Supervisor.

Bond Holders can of course by special resolution require repayment - put this would be a pyric victory vote - because the bonds are subordinated and unsecured.

Bond holders were alerted to this risk - they were told a default event could well trigger a Bank Facility default. And that doesn't serve bondholders at all.

[Basil]

Bond Holders can of course by special resolution require repayment - put this would be a pyric victory vote - because the bonds are subordinated and unsecured.

Bondholders are in a very weak and vulnerable position and in any possible future restructure might only get pennies on the dollar back in the way of a take it or leave it type restructure offer as an alternative to liquidation.  Just as well we know that Bright Dairy's owners have such a great reputation for caring so deeply about fair and equitable outcomes for all other stakeholders...oh wait...hang on a minute...

[Minimoke]

Bondholders are in a very weak and vulnerable position and in any possible future restructure might only get pennies on the dollar back in the way of a take it or leave it type restructure offer as an alternative to liquidation.  Just as well we know that Bright Dairy's owners have such a great reputation for caring so deeply about fair and equitable outcomes for all other stakeholders...oh wait...hang on a minute...

Im quite sure bond holders are taking a great deal of comfort from Synlaits B Corp certification. Ethical companies focussing on tree growing and diversity are bound to meet their debts when they fall due.

[Teitei]

A  bond default trigger is now only 14 working days away. One of the default events is failure to pay at $35m when due. Synlait have a mandatory $130m due for repayment by 31 March 2024.

At year end we know they only had $10.3m cash on hand and currently running at a multi $m loss.

A default event doesn't automatically trigger a liquidation event - that's the discretion of the Bond Supervisor.

Bond Holders can of course by special resolution require repayment - put this would be a pyric victory vote - because the bonds are subordinated and unsecured.

Bond holders were alerted to this risk - they were told a default event could well trigger a Bank Facility default. And that doesn't serve bondholders at all.

All very well - so there's a bond default and equity holders will be the first to lose everything.

So why are you not shorting the hell out of SML shares?

Genuine question, minimoke - I am not trying to have a who's right or who's wrong contest with you or anyone.

Huge gains to be made when you are so convinced that SML is going broke by shorting the stock.

[Basil]

I would think it's pretty hard to get a loan of a decent amount of SML scrip to short even if one is predisposed towards that sort of activity.

I really can see a substantial chance of SML bondholders getting leaned on with a very cheap and incredibly nasty low ball take it or leave it restructure offer.  Subordinated and unsecured are terrible words to describe bondholders security.   Yeah they could reject any possible future lowball restructure offer and that probably means they end up getting nothing.  37.4% yield that SML010 have traded at this morning is just on 80 cents in the dollar.  That's seems like an incredibly "brave" price to pay given all the circumstances.

You're a good guy Teitei, so I hope I am wrong, and it works out well for you.

[Teitei]

I would think it's pretty hard to get a loan of a decent amount of SML scrip to short even if one is predisposed towards that sort of activity.

I really can see a substantial chance of SML bondholders getting leaned on with a very cheap and incredibly nasty low ball take it or leave it restructure offer.  Subordinated and unsecured are terrible words to describe bondholders security.   Yeah they could reject any possible future lowball restructure offer and that probably means they end up getting nothing.  37.4% yield that SML010 have traded at this morning is just on 80 cents in the dollar.  That's seems like an incredibly "brave" price to pay given all the circumstances.

You're a good guy Teitei, so I hope I am wrong, and it works out well for you.

Thanks, Basil.

I always appreciate and respect your comments and observations as you know.

My investment in the bonds is part and partial of an overall balanced portfolio - not catastrophic if the bonds go to zero.  I  am not and have never been an 'all in or all out' 'hero or zero' investor!

There is scrip available at Forbar & Craigs so that's not a problem to short. I am simply interested in minimoke's reluctance to short when he is so convinced SML is beyond salvation and that bond holders will lose.

[Minimoke]

All very well - so there's a bond default and equity holders will be the first to lose everything.

So why are you not shorting the hell out of SML shares?

Genuine question, minimoke - I am not trying to have a who's right or who's wrong contest with you or anyone.

Huge gains to be made when you are so convinced that SML is going broke by shorting the stock.

Simply because I have never shorted and don't intend breaking a habit of a life time. I invest for a positive future. Not negative outcomes.

[Minimoke]

Thanks, Basil.

I always appreciate and respect your comments and observations as you know.

There is scrip available at Forbar & Craigs so that's not a problem to short. I am simply interested in minimoke's reluctance to short when he is so convinced SML is beyond salvation and that bond holders will lose.

I remain interested in opinions and facts that support an argument that SML ISN'T beyond salvation and bondholders can sleep easily at night.

[Teitei]

I remain interested in opinions and facts that support an argument that SML ISN'T beyond salvation and bondholders can sleep easily at night.

That's the spirit, Minimoke. We are all here to exchange views, discuss and learn.

Many bond holders will not be sleeping well at night with them trading at 80c in the dollar.

But I would be not sleeping at all if I held SML shares as they will go to zero first before bond holders lose any money.

[Toddy]

I doubt there would be too many shareholders on this forum holding SML shares.

Maybe recent buyers, but not long term. How many opportunities have there been over the last 5 years to exercise any stop loss limit and reinvest your capital.

It's been a very steep downward graph from the dizzy heights of 13 bucks.

Im sure that there hasn't been a stone left unturned with a hefty 11 intelligent Directors to right the ship.

[Basil]

Im sure that there hasn't been a stone left unturned with a hefty 11 intelligent Directors to right the ship.

Hmmm...I guess there were at least 11 intelligent people who designed the Titanic to be unsinkable too...
Speaking of 11...I am pleased to be out at an average of ~ $11 many years ago and have been looking for a point of logical reentry based on potential risks and rewards ever since.  Looking increasingly unlikely there will ever be one which is pretty sad and a damming inditement on the board and all their endless "b"anking with their B corp nonsense.

[BlackPeter]

I remain interested in opinions and facts that support an argument that SML ISN'T beyond salvation and bondholders can sleep easily at night.

Hard to say how this plays out. I am sure, the Chinese dragon will manage to secure this element in their food supply chain in the (for them) most suitable and economic way - thinking long term.

Whether it is part of this strategy to allow Synlait to crash and buy the pieces on the cheap, or whether they just want to push the SP as low as possible (for a take over) is anybody's best guess. Later strategy might be seen as tidier - and I guess they don't want to burn their reputation - so, sure, there might be some hope for bond and shareholders to get something offered.

What I don't understand is, is why the conflict between A2M and SML (which in my view basically caused this whole dilemma) was allowed to go public. Washing dirty laundry in public is very un-Chinese ... so - maybe we see here not a planned takeover strategy, but just some big inept western egos clashing and playing with shareholders funds and with their jobs - and the Chinese in the background just trying to make the best out of the spectacle.

I am wondering, which articles from Sun Zhu's "The art of war" might be apply? There must be some equivalent to "When two people argue, the third one is happy"?