SML - Synlait

[Minimoke]

Sp is cum-CR.

And it will continue to drop until the CR is announced.

Just like Sky TV, FBU and Ryman.

Simple, no need to look too hard for answers.

Well. Yes and no.

Yes we know they need a large amount of new capital.

But no because we have no idea on what a capital raise will look like.

All we do know is they have a few days to release details of a loan.

Then we know, assuming that loan is approved Synlait will still be in breach of 3 banking covenants.

And we can assume, perhaps, banks will work on waivers to the covenants. But still fast looming is the need for another $180m in November. Making it around a minimum of $310m needed for a cap raise.

[winner (n)]

Maybe CR at 10 cents owed by a 1 for 20 consolidation and hey ho share price back over 2 bucks

[Teitei]

Well. Yes and no.

Yes we know they need a large amount of new capital.

But no because we have no idea on what a capital raise will look like.

All we do know is they have a few days to release details of a loan.

Then we know, assuming that loan is approved Synlait will still be in breach of 3 banking covenants.

And we can assume, perhaps, banks will work on waivers to the covenants. But still fast looming is the need for another $180m in November. Making it around a minimum of $310m needed for a cap raise.

Did anyone know what the capital raisings of Sky TV, FBU or Ryman were looking like before they were announced? No - because that is the nature of capital raisings and the reason why share prices of companies cum-CR always drop and drop until such time as the CRs are announced.

Re your countdown towards when SML needs to release details of the loan, I have already posted that the banks can & will extend the loan repayment date if necessary (as they had before). It all comes down to whether they accept the commitment of Bright. And breach of banking covenants can be waived or changed - happens often enough.

They do not need to raise $310m of new capital - probably $200m once the $130m loan from Bright is in place. Again, I suggest you go and have a look at Westland's balance sheet and financial position post Yili takeover. Banks are in the business of lending to good credits and SML, post debt & capital restructuring, will have a different financial profile than it is now.

Did Ryman have to pay back all of its debts? Or FBU?

[Basil]

Not sure how you do a capital raise of several hundred million when market cap is about $70m but I guess we will see shortly.  Some multiple like 10:1 at 20 cents I suppose.  Bonds are 160-170% indicating a lot of stress there.  I do hope you get out of this okay Balance.

[Minimoke]

@teitei.

I'm not familiar with those cap raises. But if I have a look at Sky, for example, they were in a long term well established down trend. Nothing there that suggests a cum-cap raise created a fall in SP

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Ryman - they were at least profitable at 2023 half year

There was talk of a Fletcher cap Raise in Feb - did this actually happen?

[Minimoke]

Did anyone know what the capital raisings of Sky TV, FBU or Ryman were looking like before they were announced? No - because that is the nature of capital raisings and the reason why share prices of companies cum-CR always drop and drop until such time as the CRs are announced.

Re your countdown towards when SML needs to release details of the loan, I have already posted that the banks can & will extend the loan repayment date if necessary (as they had before). It all comes down to whether they accept the commitment of Bright. And breach of banking covenants can be waived or changed - happens often enough.

There little point in having a deadline if the deadline doesn't stimulate a commitment to meeting that deadline. But I agree - I don't think they banks will want a messy situation so will likely extend. Again.

Trouble is Synlait have a few bank deadlines. From 31 July 2024 there $230m revolving credit facility has to begin a step down through to 1 Oct 2025. The $270m working capital facility runs to 1 October 2024. In July the strategic review of Pokeno will be complete - who knows what that will turn up. November they expect the A2/Synlait arbitration decision which could be who knows what.

And then there is the risk arounfd the $130m which includes involvement with the Shangahai State-owned Assets Supervision and Administration Commission

They do not need to raise $310m of new capital - probably $200m once the $130m loan from Bright is in place.

The $130m isn't new equity it is just swapping one loan for another so does noting to deleverage the balance sheet.

They obviously need $180m in november. So I reckon a capital raise has to be fro at least this amount.
The $130m from Bright is to shore them up fro short term liquidity purposes. So that's how I get to the $310m

Currently they have $514m net classified as due for repayment in the next 12 months. I don't think $200m wil cut it.

Again, I suggest you go and have a look at Westland's balance sheet and financial position post Yili takeover.

Westlands has certainly improves. But Yil's investment in Oceania isn't looking so rosy - they recorded a $19.1m loss  for the year. It was a 3.9m loss the prior year.

Banks are in the business of lending to good credits and SML, post debt & capital restructuring, will have a different financial profile than it is now.

I agree. So how good a risk is Synlait.?
We can't argue the fact that they are not making a profit and the outlook looks grim.
They have over valued Dairyworks and no one is interested in buying it for what they want for it.
Pokeno is grossly underutilized. Farm gate supply sounds to me like it might be around peak,. They won't get top dollar for Pokeno in a sale.
Farmers can see the credit risk - that's why they are posting withdrawal notices. Its all well and good banks thinking they have security over assets - but famers might prefer to go to somewhere where they think their chances of getting paid are better.

Did Ryman have to pay back all of its debts? Or FBU?

I have nowhere suggested Synlait needs to pay back all it's debt. That simply wouldn't make good use of the balance sheet

[BlackPeter]

There little point in having a deadline if the deadline doesn't stimulate a commitment to meeting that deadline

Yes, that's the theory. I remember however from my work in the industry (pick one, they are all the same) that often nothing seems to move faster than a deadline ;

I always wondered why the English choose to pick the expression "dead line" for a fast moving target, but maybe it is related to "dead cat bounces" ... they can be quite agile as well.

[SemiStrongForm]

A great summary of the underlying mess that SML is in irrespective of a capital raise minimoke:

I agree. So how good a risk is Synlait.?
We can't argue the fact that they are not making a profit and the outlook looks grim.
They have over valued Dairyworks and no one is interested in buying it for what they want for it.
Pokeno is grossly underutilized. Farm gate supply sounds to me like it might be around peak,. They won't get top dollar for Pokeno in a sale.
Farmers can see the credit risk - that's why they are posting withdrawal notices. Its all well and good banks thinking they have security over assets - but famers might prefer to go to somewhere where they think their chances of getting paid are better.

This business is seriously screwed. Why take such a big risk when current operational performance is so bad? Totally sunk cost for Synlait. Dairy works is also an awkward value. Had they been able to secure the $125m that would have been enough to repay the loan but obviously its worth substantially less than that. Probably doesn't help that Fonterra has put its dairy assets up for sale.

It's classic capital structure mismanagement. An equity raise when valuations were higher could have saved this business.

[Teitei]

Yes, that's the theory. I remember however from my work in the industry (pick one, they are all the same) that often nothing seems to move faster than a deadline ;

I always wondered why the English choose to pick the expression "dead line" for a fast moving target, but maybe it is related to "dead cat bounces" ... they can be quite agile as well.

In the 1860s, a 'dead line' was a line within or around a prison.

Prisoners would be shot for crossing the 'dead line'. The sense of deadline that is most commonly found today ("a date or time before which something must be done") did not begin to see use until the early 20th century.

Interesting huh?

[BlackPeter]

In the 1860s, a 'dead line' was a line within or around a prison.

Prisoners would be shot for crossing the 'dead line'. The sense of deadline that is most commonly found today ("a date or time before which something must be done") did not begin to see use until the early 20th century.

Interesting huh?

Interesting - I learned something new ...

[Teitei]

Maybe CR at 10 cents owed by a 1 for 20 consolidation and hey ho share price back over 2 bucks

It is conceivable that SML's CR will be along the lines of a 6 for 1 at 15c to raise $200m - highly dilutary for any shareholder choosing not to particpate.

Would be similar to Sky TV's 2.83 for 1 at 12c to raise $157m, $100m of which was required to repay the $100m bond which was maturing in 6 months' time. Sounds familiar?

The devil will be in the details of the underwrite agreement as Bright will require other shareholders to approve any underwrite by Bright (or for that matter, ATM).

[Minimoke]

It is conceivable that SML's CR will be along the lines of a 6 for 1 at 15c to raise $200m - highly dilutary for any shareholder choosing not to particpate.

Would be similar to Sky TV's 2.83 for 1 at 12c to raise $157m, $100m of which was required to repay the $100m bond which was maturing in 6 months' time. Sounds familiar?

The devil will be in the details of the underwrite agreement as Bright will require other shareholders to approve any underwrite by Bright (or for that matter, ATM).

A cap raise of this magnitude would see Bright spending $78m and A2 $39.6m or $117.6 in total

What about instead Bright and A2 did a JV and offered shareholder 3x current SP (based on your reference to the Westland takeover). This would cost Bright and A2 $81m. Leaving them with $36.7n change.

They then throw another $93.2 m between them into the pot and this will pay off the banks $130m

So all up the 2 of them have spent $211m (which is only a bit more than Bright shareholders are up for = $130m + $78m) to buy Synlait lock stock and barrel. Shareholders are happy (They haven't seen  $0.90 for ages and there is zero chance it will ever get to this level with the cap raise dilution effects). Banks are happy - their debt exposure is significantly reduced. Farmers are happy because now they are supplying to credible owners.

A2's share based on their relative holding with Bright would be $$71m - and I don't think A2 shareholders would have any difficulty with this. Much better to spend this than $39m on a capital raise.

That of course leaves bond holders. Flog off dairyworks for $100m. Means Bright and A2 only have to find $80m between them. Chicken feed.

So for around $290m Bright and A2 get Dunsandle infant formula. And liquid milk processing. And canning  / blending.

As well as Pokeono. Say they flogged that off for $200m all up they get dunsandel for the princely sum of $90m

Alternatively Bright and A2 could just let the receivers in and buy the assets at fire sale prices.

[Minimoke]

I might need to keep a closer eye on the ASX.

Trades there now dropped down to AU$0.255 which converts to NZ$0.277 (NZX showing $0.295 trades)

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[Minimoke]

3 days to let market know terms of Bright Deal.

Its taking a while - is it no going to plan?

[Teitei]

3 days to let market know terms of Bright Deal.

Its taking a while - is it no going to plan?

Who knows, we might see a takeover offer in 3 days' time.  There are 'brave' buyers picking up stock daily and bond price is heading the other way in recent days.  Does not make sense if things are apparently not going to plan?