Synlait CEO Resignation Highlights Deeper Challenges Facing Dairy Processor
A revolving door of chief executives at milk processor Synlait is a warning sign, says Lincon University senior lecturer in agribusiness Nic Lees.
The support of a2 Milk Company, which owns 19% stake in Synlait, to approve a $130 million shareholder loan from China’s Bright Dairy is crucial to keep the struggling listed company afloat. Bright Dairy in the biggest shareholder in Synlait with a 39% stake. However, Bright Dairy cannot vote on the resolution to approve the loan.
If the resolution is approved, Synlait will fully draw down the loan to meet the $130 million payment due to its banks on 15 July 2024.
Synlait’s board has warned that if the resolution isn’t approved and the banks do not agree to alternative arrangements, Synlait “will need to cease trading or initiate a formal insolvency process”.
In a NZ Stock Exchange announcement today, chair George Adams says Synlait and the a2 Milk Company Limited have continued to engage in discussions.
However, the a2 Milk Company Limited has not advised Synlait how it will vote on the resolution, he says.
“The shareholder loan resolution is very important to Synlait’s future, and we encourage all our shareholders, no matter the size, to have your say and vote on this important matter.
“It is particularly important that everyone cast their vote as the future of the company is at stake and failure to approve the loan will mean the Board have limited options available to them.”
Independent directors of Synlait have unanimously recommended that shareholders vote in favour of the resolution. Since Bright Dairy cannot vote in favour of the resolution, the directors appointed by Bright Dairy have abstained from making a recommendation.
Synlait reported a half-year net loss after tax of $96.2 million earlier this year. The company is losing money via under-utilised assets in the North Island, including a new milk plant at Pokeno. However, it’s been unable to find suitable buyers to offload the milk plant and its Dairyworks cheese business.
Bright Dairy remains committed to Synlait’s future.
Bright-appointed director Julia Zhu says the $130 million shareholder loan facility is one part of Bright’s wider support to see Synlait return to a much stronger financial and operating position, as early as practicable in this economic cycle.
“We are deeply committed to Synlait, believing its assets and operations to offer significant value and opportunity within regional and global dairy markets.
“Notwithstanding Synlait’s short-term challenges, we see a pathway to growth and future value, and we will continue to work closely with the board and management team to do what we can to help with the company’s turnaround plan.
“Bright Dairy fully supports Synlait raising equity capital, subject to finalised terms and all necessary approvals being received, to more substantially reset the company’s equity and debt position to provide a platform to return to sustainable growth for Synlait’s farmers and all shareholders.”
Synlait’s financial problems has spooked its 300 farmer suppliers, with many of them giving two-year notice of cessation to the company.
