SML - Synlait

[Minimoke]

Hmm - while I understand all the outpour of cynicism (not just yours) - and while I contributed myself in beating up this company ... I guess there is just one thing I am asking myself:

Why would Nestle go all the length to shape an effluent partnership agreement with a quickly deteriorating milk producer sitting on a rock in the South Pacific taking just its last breaths before it is being squashed between the interests of an inept management and selfish shareholders with a hidden agenda (which would be contrary to the agenda of Nestle)?

Just wondering - maybe, just maybe Nestle might be the white knight - and maybe it is not just the Chinese waiting to sieze an opportune moment in the self destruction battle between SML and A2M.

Wouldn't it be interesting if Nestle buys into SML on the cheap - and adds it to its empire?

While a secure milk supply would be good for China, it clearly would be as well desirable for the largest food and beverage company in the world.

Who knows, maybe the board had a bright moment after all and did put their priorities right ... but we shall see.

I thought about that - and its why I likened it to the "Stop The Presses" BlackRock" announcement.

One party to the "deal" needs some positive publicity.

And it worked. If you look at the article in the magazine below it appears to have been written by a journalist, Suddish Kissun. But on closer inspection it isn't an article at all. Its essentially a word for word copy of the Synlait market announcement.

So I'm left thinking that Nestle needs some positive ESG publicity - and what better than some positive environmental announcement in a company in the bottom of the south pacific which is hardly likely to grab any closer attention.

And of course the other party gets a distraction in the media.

Win / Win

https://www.ruralnewsgroup.co.nz/rural-news/rural-general-news/synlait-nestle-sign-deal-to-reduce-on-farm-emissions

[Breezy]

I thought about that - and its why I likened it to the "Stop The Presses" BlackRock" announcement.

One party to the "deal" needs some positive publicity.

And it worked. If you look at the article in the magazine below it appears to have been written by a journalist, Suddish Kissun. But on closer inspection it isn't an article at all. Its essentially a word for word copy of the Synlait market announcement.

So I'm left thinking that Nestle needs some positive ESG publicity - and what better than some positive environmental announcement in a company in the bottom of the south pacific which is hardly likely to grab any closer attention.

And of course the other party gets a distraction in the media.

Win / Win

https://www.ruralnewsgroup.co.nz/rural-news/rural-general-news/synlait-nestle-sign-deal-to-reduce-on-farm-emissions

Just trying to grab some positive kudos by woke virtue signaling.

[Minimoke]

Someone has had enough. Over 1.5m shares crossed at close at $0.69 (1 cent shy of all time low). About the third highest volume in past 12 months.

The flip side, obviously is that someone is keen. And seems to be accumulating.

And we are now officially in space countdown period.

10, no 9 days to go.

[Basil]

About to do a SpaceX and break up ?

[Minimoke]

So. By my reckoning Synlait now have 4 working days to pay back at least $130m. At least that is what they have told the market.

I don't know much about capital raises. But I reckon it takes longer than 4 days to do. Unless you have come to a behind the scenes arrangement with someone that excludes minority shareholders.

Alternatively they have done a behind the scenes deal with bankers -in which case I would have thought market disclosure rules would apply.

Alternatively they have sold off Dairy works and can pay back the $130m in which case I would have thought market disclosure rules would apply.

And bond holders ought to be kept in the know - they have a $35m repayment desperately needed otherwise there is a bond default trigger.

[Ferg]

Alternatively they have done a behind the scenes deal with bankers -in which case I would have thought market disclosure rules would apply.

There will be some t that has not yet been correctly crossed, or some i not yet correctly dotted, which means any such relief from the bankers is not currently 'finalised' so they can't release it to the market right now.  That's my prediction.

[Teitei]

2nd April - one day after April Fools' Day - when all will have to be revealed. Who will be the fools?

As one of my ex-bosses (high flyer with a law degree from Harvard) used to advise, keep an eye on the big picture before going through the fine details.

Here's where I see the big picture for SML :

1.  ATM needs SML to stay in business until 2027 (3 more years at least) or else, ATM itself will be out of business.

"Without Synlait, which holds the licence for manufacture of Chinese-labelled "a2 Platinum", a2Milk is in big trouble. It would mean a2Milk would need to obtain an equivalent licence for its majority-owned Mataura Milk in Southland. Obtaining that licence could be a long process, and there is also a long herd-conversion process before Mataura will have the necessary volume of A2 milk."

2. Synlait is part of the long term global food chain supply strategy of Shanghai Maling via Bright Foods in NZ - the other being Silver Fern Farm ($311m).

3. There are 8 directors in Synlait (including ex Finance Minister, Ruth Richardson), consisting of 5 NZ directors and 3 Bright Foods appointees. They will be very mindful of the implications of Synlait being able to meet its ongoing debt servicing and debt repayment/refinance obligations. Otherwise, like Jenny Shipley found with Mainzeal, they become personally liable.

https://www.nzherald.co.nz/business/mainzeal-claims-hit-159m-dame-jenny-shipley-settles-66m-payment/6KJ3J36BC5CUZBML5NPVYYVGLY/
paywalled

"The big court case result out last August ruled the Mainzeal directors were liable for $39.8m plus interest and costs but it also sparked more creditor claims. Shipley, Peter Gomm and Clive Tilby had settled payments of $6.6m each, the report said.

"The Supreme Court ordered the directors to contribute to the assets of the companies $39.8m together with interest at the prescribed rates for the period from 28 February 2013 to the date of the judgment. With interest, the judgment sum exceeds $60m," McKay and Bethell's report said.

4. Last observation goes to Keith Woodford :

https://www.farmersweekly.co.nz/opinion/where-does-synlaits-future-lie/

"The cleanest outcome would be if a2Milk were to make an outright bid to purchase Synlait. Bright could then decide to sell or retain its shares.

If Bright decided to retain the shares, then a2milk would need to buy at least 76% of other shareholdings to obtain control. Perhaps a2Milk is biding its time, as the screws are tightened on Synlait. And then, what would Bright decide to do? Perhaps a counter offer to ratchet up the price?

The only thing close to a certainty is that something big now has to happen. The Synlait of the future is going to be very different to the current Synlait."

[Teitei]

Might apply for the job and get an insight into the refinancing deals!

https://www.seek.co.nz/job/74706310?type=promoted&ref=search-standalone#sol=9d51e8f7f3dbbe9e6604d72d23c3b87ec9fa4188

[Minimoke]

Might apply for the job and get an insight into the refinancing deals!

https://www.seek.co.nz/job/74706310?type=promoted&ref=search-standalone#sol=9d51e8f7f3dbbe9e6604d72d23c3b87ec9fa4188

"Work for an award-winning company"

Yea. Working for a B Corp is a real draw card for an able minded person.

[Left Field]

Trading halt

https://www.nzx.com/announcements/428715

Interesting times ahead!

[Teitei]

Trading halt pending announcement on financial support from Bright Dairy.

https://www.nzx.com/announcements/428715

Convertible note issue of $150m to Bright Dairy?  Say $150m at 5% pa convertible to SML shares at 75c (subject to shareholders' approval) - will deliver full control to Bright Dairy in 2027.

Interesting crossing of SML bonds yesterday - 860,000 bonds crossed at 80c (37% yield to maturity) so who was the buyer?

[Minimoke]

Trading halt pending announcement on financial support from Bright Dairy.

https://www.nzx.com/announcements/428715

Convertible note issue of $150m to Bright Dairy?  Say $150m at 5% pa convertible to SML shares at 75c (subject to shareholders' approval) - will deliver full control to Bright Dairy in 2027.

Interesting crossing of SML bonds yesterday - 860,000 bonds crossed at 80c (37% yield to maturity) so who was the buyer?

I wonder what A2 think about that. They have a blocking stake.

Talk about taking things to the wire. Synlait have had ages to get this done. But in the meantime they have succeeding in getting a B Corp accreditation and some lipstick provided by nestle to stick on the pig.


Quite clearly the banking syndicate is stitching something together that sees them in the clear.

They won't be thinking about Bond holders.

If I was a bond holder I would be EXTREMELY concerned

[Minimoke]

Lets just highlight a pertinent part in today's announcement

"As previously announced by SML, SML (i) is required under its syndicated banking facilities to make a prepayment of at least $130 million on Thursday, 28 March 2024"

Quite clealry they have not and will not make this paymenton 28 March.

Now lets refer to the bond documents andin particualry the "events of default" provisions
"The Supervisor may in its discretion, and must upon being directed to do so by a Special Resolution of Bondholders, declare the Bonds to be due and payable at the Redemption Amount if one of the following events occurs:.......
- indebtedness in respect of borrowed money of more than $35 million is not paid when
due, or is called up as a result of a default or a commitment for such indebtedness is
cancelled;"

So, what say the Bond Supervisors? What liability do they have if they fail to exercise their discretion?

[Basil]

With respect, I think you are debating semantics here mate.  It's quite clear they are seeking a deferment of just 1 trading day.  I really don't think any bond supervisor is going to take prescriptive action over that or face any liability especially as its in a trading halt to give effect to that deferment.   If Bright Dairy doesn't come through with a rescue package next Tuesday...the "proverbial" is likely to hit the fan shortly afterwards.

Get a large fresh batch of popcorn in over Easter for consumption on Tuesday morning 😊

[Teitei]

I wonder what A2 think about that. They have a blocking stake.

Talk about taking things to the wire. Synlait have had ages to get this done. But in the meantime they have succeeding in getting a B Corp accreditation and some lipstick provided by nestle to stick on the pig.


Quite clearly the banking syndicate is stitching something together that sees them in the clear.

They won't be thinking about Bond holders.

If I was a bond holder I would be EXTREMELY concerned

If you are a bond holder, you would be extremely distressed - that's for sure!