China’s Bright Dairy is poised to become the majority stakeholder in Synlait Milk through a crucial NZ$271.8 million ($166.8 million) equity raise aimed at revitalizing the struggling New Zealand company. Currently, Bright Dairy holds 39% of Synlait and will increase its stake to 65.3% after participating in the new funding round, pending approval at an upcoming meeting in September.
Synlait, which recently benefited from a NZ$130 million bailout loan from Bright Dairy, has cautioned that its operations may come to a halt if this additional capital isn’t secured. Furthermore, the anticipated commitment from The A2 Milk Co. to participate in the equity offering—which is part of a recently settled agreement to resolve a long-standing contractual dispute—will not be realized without this funding.
Under the terms of a placement agreement, A2 Milk is poised to acquire NZ$32.8 million worth of Synlait shares, ensuring it retains its position as the second-largest shareholder with a 19.8% stake. Bright Dairy’s commitment includes subscribing for NZ$185 million of the new equity.
Additionally, reaching an agreement with banking creditors for debt refinancing is imperative for securing Synlait’s longevity as a viable entity. Chairman George Adams issued a stark warning in a stock-exchange filing, stating that banks could opt to call in loans if the necessary agreements are not met.
“This equity raise is critical for Synlait’s future. If the resolutions are not passed, it’s likely Synlait would need to cease trading and initiate a formal insolvency process,” stated Adams.
Moreover, he added that the completion of the equity raise should coincide with the refinancing of Synlait’s bank facilities. The chairman noted that these elements—the equity raise, the recent settlement with A2 Milk, and debt refinancing—are interconnected and must be finalized concurrently, or not at all.
These three components are expected to reach completion by October 1, with a shareholder meeting to secure approval for the equity raise scheduled for September 18. Nonetheless, Synlait faces imminent debt obligations due in October and has indicated that in the event of a default, banks may seek to commence a formal insolvency process.
Notably, the company confirmed that all elements of the existing bank facilities (excluding tranches with a combined limit of approximately $62 million) are set to mature on October 1, 2024, necessitating repayment by that date unless refinanced.
Synlait characterized this equity raise as “significant,” representing roughly three times the company’s current market capitalization. “Raising that amount of new equity capital is highly challenging in any circumstance, but particularly so for Synlait due to its over-leveraged financial standing and recent financial performance,” it remarked.
Julia Zhu, a board member appointed by Bright Dairy, expressed a strong commitment to Synlait, reinforcing confidence in the company’s long-term prospects within the global nutrition market. “Our initial investment in Synlait was made almost 15 years ago, and our decision to invest at this pivotal moment underscores our enduring commitment to Synlait and its stakeholders,” Zhu stated.
On September 30, Synlait is slated to release its full-year results. However, it withdrew its EBITDA guidance of NZ$45–60 million in July, and today the company mentioned that it remains unable to provide an update on its expected FY-24 results for the year ending July 31.
In a time when many are closely monitoring food and beverage industry trends, Synlait’s efforts to stabilize its operations through strategic partnerships could shape future consumer trends in the food and drink business.
This situation highlights the critical interplay between financial stability and market positioning, all vital in today’s evolving food and drink consumer trends landscape.
