Bright Dairy to become majority shareholder of Synlait Milk amid critical equity raise

CHINA– Bright Dairy, a prominent Chinese dairy and infant-formula manufacturer, is poised to become the majority shareholder of Synlait Milk, a New Zealand-based dairy company.

The shift in ownership comes as part of a crucial NZ$271.8 million (US$166.8 million) equity raise aimed at securing Synlait’s future.

Currently, Bright Dairy holds a 39% stake in Synlait, but this will increase to 65.3% following the equity raise, provided it receives shareholder approval at a meeting scheduled for September.

This move is seen as critical for the survival of Synlait, which has been grappling with financial difficulties. The company recently received a NZ$130 million bailout loan from Bright Dairy, highlighting the severity of its situation.

Synlait has warned that without the additional capital, the business is likely to fail. The company has also secured a commitment from The A2 Milk Co., its second-largest shareholder, to participate in the equity offering.

A2 Milk is expected to subscribe to NZ$32.8 million worth of shares, maintaining its 19.8% stake in the company. This commitment was part of a settlement reached last week, ending a protracted dispute over contracts and pricing between the two companies.

In addition to the equity raise, Synlait must also reach an agreement with its banking creditors to refinance its debt.

Chairman George Adams emphasized the critical nature of these steps in a stock-exchange filing, warning that the failure to secure the capital could lead to the company ceasing operations and entering a formal insolvency process.

“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,” Adams stated.

He added that the equity raise, the settlement with A2 Milk, and the debt refinancing are all interconnected and must be completed together.

The deadline for finalizing these components is set for October 1, 2024 with a shareholder meeting to approve the equity raise slated for September 18, 2024.

Synlait faces significant debt obligations due in October, and the company has indicated that a default could lead to its creditors initiating a formal insolvency process, such as appointing a receiver.

Synlait’s current financial challenges are underscored by the fact that the equity raise represents approximately three times the company’s market capitalization.

The company has described the task of raising this amount of capital as “highly challenging,” given its over-leveraged financial position and recent poor financial performance.

Julia Zhu, a Synlait board director appointed by Bright Dairy, reaffirmed the company’s commitment to supporting Synlait during this critical period.

“We remain confident about the long-term prospects for Synlait in the global nutrition market,” Zhu said. “Our decision to invest at this critical juncture reflects our long-term commitment to Synlait, its shareholders, employees, customers, and suppliers.”

Synlait is expected to release its full-year financial results on September 30, but the company has already withdrawn its earlier EBITDA guidance of NZ$45-60 million, indicating ongoing uncertainty about its financial outlook.

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