Synlait Milk has agreed to recapitalisation terms with its two largest shareholders that include aggregate new equity of $217.8 million. It is also in the final stages of refinancing its bank facilities. A special shareholders’ meeting will be held on 18 September to approve the plan.
Synlait said recapitalisation was a critical step for its future. The $217.8 million of new equity capital will come from a $185 million issue of shares to Bright Dairy at an issue price of $0.60, which will increase its shareholding from 39.01 to 65.25 per cent, and a $32.8 million issue to The a2 Milk Company (a2MC) at a price of $0.43, which will result in it retaining its 19.83 per cent holding.
Synlait said, “The size of the required recapitalisation is significant, with the proposed proceeds to be raised under the equity raise representing around three times Synlait’s current market capitalisation. Raising that amount of new equity capital is highly challenging in any circumstance but is particularly so for Synlait given its current over-geared financial position and recent financial underperformance.”
The settlement with a2MC announced on 16 August 2024 was conditional on a number of matters including the Bright and a2MC placements.
Synlait chair, George Adams, said the equity raise was critical and that the company had followed a rigorous process with independent advice to consider a range of options.
“If the resolutions are not passed, it’s likely Synlait would need to cease trading and initiate a formal insolvency process. We are particularly grateful for the continued support of our two major shareholders, Bright Dairy and The a2 Milk Company. Their investment demonstrates their deep commitment to Synlait’s future,” said Adams.
The equity raise will only complete if it does so concurrently with the refinancing of Synlait’s bank facilities. The equity raise, the settlement with a2MC, and the bank refinancing are inter-conditional and therefore must all be approved and occur contemporaneously (or substantially contemporaneously) with each other, or not at all.
Completion of all three components is expected on 1 October 2024.
If either of the placement resolutions is not passed, then the placements, the settlement with a2MC and the bank refinancing cannot be completed and Synlait would be unable to repay debt and reset its balance sheet.
That would see Synlait cease trading and initiate a formal insolvency process, unless further support was provided by its banks. Synlait said that even if the board thought it could continue trading, the banks could seek to initiate a formal insolvency process, such as appointing a receiver, were Synlait to default on its obligations to those banks.
Accordingly, after taking external financial advice, the Independent Directors formed the view that the optimal offer structure for the company and its shareholders is via the placements to its two major shareholders, Bright Dairy and a2MC.
Adams said, “The board acknowledges the strong support retail shareholders have provided to Synlait, especially with the recent approval of the $130 million shareholder loan. We are extremely grateful for this. However, the selected equity raise structure provides the greatest certainty of reducing Synlait’s debt in the shortest timeframe and at a more favourable price than alternative structures.
“This is critical to resetting our balance sheet and will hopefully reward all shareholders for their long-term and loyal support as we work to restore confidence in our company.”
The Independent Directors unanimously recommend shareholders vote in favour of the ordinary resolutions relating to each of Bright Dairy and a2MC.
Bright Dairy appointed director on the Synlait board, Julia Zhu said, “We remain confident about the long-term prospects for Synlait in the global nutrition market. We first invested in Synlait almost 15 years ago and our decision to invest at this critical juncture reflects our long-term commitment to Synlait, its shareholders, employees, customers and suppliers.”
