SML - Synlait

[Minimoke]

Casting my mind right back to when I first started investing in the early 80's I'm struggling to recall a company that's been in deeper doggy doo without actually being in receivership already?. Nothing comes to mind. Pretty clear Pokéno is worth pennies on the dollar compared to cost and Dairy works worth nothing like the written down value.  An absolute ocean of debt and most assets worth very little. Most suppliers headed out the door. My goodness it looks extremely grim!

What about AirNZ in 2001. Avoided receivership via a govt bailout though (as it did more recently)

[Basil]

Yeap, great example but I think the chances of Chris Luxon bailing this out is nil.

[Basil]

https://businessdesk.co.nz/article/primary-sector/synlait-shareholder-bright-dairy-digging-its-heels-in-on-dunsandel-plant?utm_source=nzh&utm_medium=referral&utm_campaign=nzh-home

Can anyone share the guts of what's in here please.
Maybe Bright wants to secure their $130m load specifically as first mortgagee against the Dunsandel plant ?
If so, I think shareholders should tell them to go and get stuffed.

[snapiti]

https://businessdesk.co.nz/article/primary-sector/synlait-shareholder-bright-dairy-digging-its-heels-in-on-dunsandel-plant?utm_source=nzh&utm_medium=referral&utm_campaign=nzh-home

Can anyone share the guts of what's in here please.
Maybe Bright wants to secure their $130m load specifically as first mortgagee against the Dunsandel plant ?
If so, I think shareholders should tell them to go and get stuffed.

And what other choice is on the table.
This is the problem when you run the company into this sort of position you have no power to negotiate.

[Basil]

Bright are excluded from voting on the $130m loan.  If it turns out they want first mortgage security on Dunsandel, I don't think its likely that ATM would vote for that. 

[Minimoke]

https://businessdesk.co.nz/article/primary-sector/synlait-shareholder-bright-dairy-digging-its-heels-in-on-dunsandel-plant?utm_source=nzh&utm_medium=referral&utm_campaign=nzh-home

Can anyone share the guts of what's in here please.
Maybe Bright wants to secure their $130m load specifically as first mortgagee against the Dunsandel plant ?
If so, I think shareholders should tell them to go and get stuffed.

I wrote a long response but it appears to have got lost.

So in short what sane compnay would do a debt for equity deal?

So it has to be debt for capital. Loans secured against assests.

Swap out bank debt for Bright debt. Secured against assets.

A2 need to be part of this game!

[snapiti]

Bright are excluded from voting on the $130m loan.  If it turns out they want first mortgage security on Dunsandel, I don't think its likely that ATM would vote for that. 

No other deal on the table and time has all but run out...please let us know what other options they have

[Basil]

No other deal on the table and time has all but run out...please let us know what other options they have

Frankly, receivership is looking more and more likely.

[Minimoke]

Frankly, receivership is looking more and more likely.

The banks have their loans secured over all current and future property. So lets look at this security.

According to the last Annual report
- Land worth = 55.4m
- Building = 276.4m
- Plant and equipment = 598.
- Fixtures and fitting = 10m

Lets call it $993m all up.

Now knock a years worth of depreciation (say $46m) and we are left with $947m

However, Synlait have dairworks in their books at $163.5m. But its clear no one is prepared to pay, say $100m (because they would have taken $130m to clear the bank pressure)

So clearly the value of the assets are over stated.

What would you get in a fire sale. Say 50% off. Obviously Pokeno isn't a going concern. Dairyworks isn't attractive despite making a profit. Who wants a milk processor. Really only leaves Dunsandel Infant formula as a valuable asset. And this only valuable for as long as farmers supply milk and A2 buys products. Lets say all up $450m worth of security.

Banks will be nervous. But should get out of this without losing any skin.

Earlier I suggested a debt for capital arrangement. Maybe it just makes sense for Bright and A2 to buy the assets now and do a lease back like Synlait did with parts of Auckland.

[winner (n)]

A payment due on those bonds this Friday

[Minimoke]

A payment due on those bonds this Friday

17 June. Another $1.723m going on the overdraft.

[Teitei]

Bright in the box seat.

Who holds all the cards?

A2M will have to just swallow hard and accept what's on offer - cede control to Bright.

Or does A2M need reminder of who controls access of its infant formula into China? 

[Minimoke]

Bright in the box seat.

Who holds all the cards?

A2M will have to just swallow hard and accept what's on offer - cede control to Bright.

Or does A2M need reminder of who controls access of its infant formula into China? 

Arguably A2 has no control now. Just a 20% shareholder and no seat on the board.

[Teitei]

Arguably A2 has no control now. Just a 20% shareholder and no seat on the board.

A2M never had any real influence, save as a customer - let alone control!

But according to news articles & some of the postings, A2M could play itself into the game when imo, A2M is but a eunuch who is 100% dependent upon the Chinese to get access into the China market. A2M has no real card to play - that is really my point.

The future of SML will be determined and dictated by Bright & the Chinese - get used to the idea and the picture becomes very clear as to what happens next.

[Minimoke]

A2M never had any real influence, save as a customer - let alone control!

But according to news articles & some of the postings, A2M could play itself into the game when imo, A2M is but a eunuch who is 100% dependent upon the Chinese to get access into the China market. A2M has no real card to play - that is really my point.

The future of SML will be determined and dictated by Bright & the Chinese - get used to the idea and the picture becomes very clear as to what happens next.

A2's relationship with china is via state owned enterprise China State Farm, A subsidiary of China National Agriculture Development Group. A2 has shown it is interested in providing security to Chinas food supply by buying 75% of Mataua off China Animal Husbandry Group. A subsidiary of China National Agriculture Development Group.

Where as Synlait is via Bright, a Shanghai Municipal company owned by local government