Embattled New Zealand dairy business Synlait Milk has received shareholder backing for a large loan from its major backer, the Chinese company Bright Dairy.
Synlait will get a NZ$130m ($79.6m) loan from Bright Dairy. The loan runs for 12 months with an 8% interest rate.
Announcing investor approval for the loan in a stock exchange announcement today (11 June), Synlait chairperson George Adams said: “The shareholder loan resolution was very important to Synlait’s future and completed the first step in resetting Synlait’s balance sheet.”
Synlait announced plans to secure the loan from Bright Dairy – which holds 39% of the Kiwi firm – last month amid further debt warnings and news it had abandoned the sale of its Dairyworks cheese business. It also issued a downbeat EBITDA forecast.
The company is also involved in a contract and pricing spat with its second-largest shareholder – fellow New Zealand dairy business A2 Milk Co. which holds a 19.8% stake in its peer.
However, in a second stock exchange announcement Synlait – which is listed on both New Zealand and Australian exchanges – said A2 had indicated it would vote in favour of the Bright Dairy loan.
This came to pass as final voting figures showed 99.6% backing for the loan arrangement.
Synlait said it will draw down the loan to meet the $130m payment due to its banks on 15 July.
This could solve another problem Synlait is facing. Its farmer suppliers have threatened to withdraw from service agreements unless the Christchurch-headquartered company reduces its debt.
In today’s stock exchange announcement to shareholders, Adams said: “Synlait’s core advanced nutrition and foodservice businesses have enormous growth potential, and we are committed to delivering on that for your benefit.”
On behalf of Bright Dairy-appointed directors, director Julia Zhu said: “Bright Dairy acknowledges today’s shareholder vote in support of the board’s turnaround actions underway to restrengthen Synlait’s financial position.
“There is a stronger, healthier future for the business coming and Bright Dairy is deeply committed to ensuring the Synlait’s long-term success for all shareholders and its farmer suppliers.”
Adams was asked at the shareholders' meeting how Synlait had got into such a predicament.
He said Synlait had borrowed about NZ$400m to expand and diversify into consumer goods and new plants in the North Island and did not have the performance around 2021/22/23 to justify that level of commitment around non-performing assets.
He added Covid-19 and the falling Chinese birth rate had exacerbated Synlait's problems.
