Synlait lodges PDS and announces indicative margin
Synlait Milk Ltd • 1028 Heslerton Road, Rakaia 7783, Private Bag 806, Ashburton 7740, New Zealand. +643 373 3000 • www.synlait.com
SYNLAIT MILK LIMITED ANNOUNCEMENT NZX: SML
ASX: SM1
29 November 2019
Sy n l a i t l o d g e s P r o d u c t D i s c l o s u r e
S t a t e m e n t a n d a n n o u n c e s i n d i c a t i v e
m a r g i n
Synlait Milk Limited (Synlait) is making an offer of up to $150 million of five-year unsecured subordinated
fixed rate bonds (with the ability to accept up to $50 million of oversubscriptions at Synlait’s discretion)
maturing on 17 December 2024 to New Zealand institutional and retail investors (the Offer).
The Offer is expected to open on 9 December 2019 and close on 13 December 2019, with the bonds quoted
on the NZX Debt Market.
Synlait Chair Graeme Milne commented: “Synlait’s strategy to diversify our earnings, customer base and
sites, must extend to our balance sheet. We have experienced a period of sustained growth and investment,
and the Board believes that now is an appropriate time to issue Bonds. This will provide diversification of
funding and capital structure flexibility, while providing an interest-bearing investment option to those
wishing to invest in Synlait.”
Synlait has announced that the indicative margin range above the five year swap rate for the bonds is
2.50% to 2.70% per annum, subject to a minimum interest rate of 3.70% per annum. An announcement
of the interest rate for the bonds will be made following a bookbuild process, which is expected to be
completed on 6 December 2019.
ANZ Bank New Zealand Limited (ANZ) and Jarden Securities Limited (Jarden) are the Joint Arrangers. ANZ,
Deutsche Craigs Limited, Forsyth Barr Limited and Jarden have been appointed as Joint Lead Managers
with Hobson Wealth Partners Limited appointed as a Co-Manager for the Offer.
Synlait has lodged a Product Disclosure Statement (PDS) with the Registrar of Financial Services Providers
in New Zealand (Registrar) and made available further information on the register of offers of financial
products administered by the Registrar (Register Entry) (the PDS and the Register Entry are the Offer
Materials) in respect of the Offer. The Offer Materials are available at www.companies.govt.nz/disclose
under Synlait's offer number (OFR12776). The PDS is also available at www.synlait.com/bondoffer or from
a Joint Lead Manager, the Co-Manager or a NZX Participant. The Offer Materials contain details of the Offer
and should be read before any investment decision is made. Investors should not subscribe for any bonds
in Synlait except on the basis of information in the Offer Materials and should consult their financial and
other advisers before making any investment in Synlait.
There is no public pool for the Offer, with all of the bonds being reserved for clients of the Joint Lead
Managers, the Co-Manager, NZX Participants and other approved financial intermediaries. Investors can
register their interest by contacting any of the Joint Lead Managers or the Co-Manager, as detailed below,
or their usual financial advisor.
This Offer is being made in accordance with the Financial Markets Conduct Act 2013.
Synlait Milk Ltd • 1028 Heslerton Road, Rakaia 7783, Private Bag 806, Ashburton 7740, New Zealand. +643 373 3000 • www.synlait.com
Copies of the PDS, Synlait’s roadshow presentation and the indicative terms sheet are attached and are also
available at: www.synlait.com/bondoffer
JOINT LEAD MANAGERS
0800 269 476
0800 226 263
0800 367 227
0800 005 678
CO-MANAGER
0800 742 737
For investor relations enquiries:
Hannah Lynch
Corporate Affairs Manager
P: + 64 21 252 8990
E: Hannah.Lynch@synlait.com
For media enquiries:
Linda Chalmers
Senior Communications Advisor – External
P: +64 21 951 347
E: linda.chalmers@synlait.com
For more information about Synlait visit www.synlait.com
ABOUT SYNLAIT
• Synlait is a manufacturer with a focus on supplying high value fully finished infant formulas and
dairy ingredients to leading milk-based health and nutrition companies internationally, including
The a2 Milk Company™
• The company has grown from start-up to 146,000 MT of annual production volume in 11 years,
with revenue growing by a 25% CAGR and exceeding $1 billion for the first time in FY19.
• Synlait operates from a powder manufacturing, blending and canning and advanced liquid dairy
facility in Dunsandel, a powder manufacturing facility in Pokeno, a blending and canning facility
in Auckland, a bulk and speciality cheeses manufacturing facility in Temuka, and recently
Synlait Milk Ltd • 1028 Heslerton Road, Rakaia 7783, Private Bag 806, Ashburton 7740, New Zealand. +643 373 3000 • www.synlait.com
announced the acquisition of all of the shares in the branded dairy products business Dairyworks
Limited in Christchurch. This acquisition is subject to Overseas Investment Office approval.
• The company has recently entered the Everyday Dairy category, supplying fresh milk and cream
to Foodstuffs South Island, and acquiring Talbot Forest Cheese and Dairyworks Limited.
Synlait does not intend that the bonds be offered for sale, and no action has been taken or will be taken to
permit a public offering of bonds in any jurisdiction other than New Zealand.
This document is not, and should not be construed as, an offer to sell or a solicitation of an offer to buy
Synlait bonds and may not be relied upon in connection with any purchase of Synlait bonds. This document
may not be published, delivered or distributed in or from any country other than New Zealand.
The information in this document has been prepared by Synlait solely for informational purposes and does
not purport to be complete or comprehensive and does not constitute financial product, investment, tax or
other advice.
Synlait has been designated as a "Non-Standard" (NS) issuer by NZX because Bright Dairy Holdings Limited,
its cornerstone shareholder, has the right to appoint four Directors to the Board.
---
SUBORDINATED BOND OFFER
ROADSHOW PRESENTATION
29 November 2019
JOINT LEAD MANAGERSCO-MANAGER
Synlait Milk Limited Retail Bond Presentation 2
DISCLAIMER AND IMPORTANT NOTICE
This presentation has been prepared by Synlait Milk Limited (Synlait) in relation to the offer of unsecured, subordinated fixed rate bonds
described in this presentation (Bonds). Synlait has lodged a Product Disclosure Statement dated 29 November 2019 (PDS) with the Registrar
of Financial Service Providers in New Zealand (Registrar) and made available the information on the register of offers of financial products
administered by the Registrar (Register Entry) (the PDS and the Register Entry, together the Offer Materials) in respect of the offer of Bonds
(Offer). The Offer Materials contain details of the Offer and other material information in relation to the Offer and should be read before
any investment decision is made. The Offer Materials and this presentation should be read in conjunction with Synlait’s other periodic and
continuous disclosure announcements, which are available at www.nzx.com. Capitalised terms used in this presentation but not defined bear
the meaning given to that term in the PDS.
A copy of the PDS is available through www.companies.govt/disclose (OFR12776) or by contacting the Joint Lead Managers. No applications
will be accepted or money received unless the applicant has been given the PDS.
Information
This presentation has been prepared solely for informational purposes and does not purport to be complete or comprehensive and does
not constitute financial product, investment, tax or other advice, nor does it constitute a recommendation from Synlait, the Supervisor, the
Arrangers, the Joint Lead Managers, the Co-Manager or any of their respective shareholders, directors, officers, employees, affiliates, agents
or advisors to subscribe for or purchase the Bonds. No representation or warranty, express or implied, is made as to the accuracy, reliability,
completeness, correctness or currency of the information, statements, estimates, projections, targets, opinions or forecasts, or as to the
reasonableness of any assumptions any of which may change without notice to you, contained in this presentation. This presentation does not
take into account your personal objectives, financial situation or needs and you should consult your financial and other advisors before any
investment decision is made.
Not an offer
This presentation is not and should not be construed as an offer to sell or a solicitation of an offer to buy Bonds and may not be relied upon
in connection with any purchase of Synlait securities. It shall not form the basis of or be relied on by you to make an investment decision,
nor shall this presentation or any information communicated in it, form the basis of any contract or commitment to purchase or transfer any
securities. The distribution of this presentation, and the offer or sale of the Bonds, may be restricted by law in certain jurisdictions. Persons who
receive this presentation outside New Zealand must inform themselves about and observe all such restrictions. Nothing in this presentation
is to be construed as authorising its distribution, or the offer or sale of the Bonds, in any jurisdiction other than New Zealand and Synlait
accepts no liability in that regard. The Bonds may not be offered or sold directly, indirectly, and neither this presentation nor any other offering
material may be distributed or published, in any jurisdiction except under circumstances that will result in compliance with any applicable law
or regulations.
Disclaimer
None of Synlait, the Supervisor, the Arrangers, the Joint Lead Managers, the Co-Manager or their related companies and affiliates including, in
each case, their respective shareholders, directors, officers, employees, affiliates, agents or advisors, as the case may be (Specified Persons),
have independently verified or will verify any of the content of this presentation and none of them are under any obligation to you if they
become aware of any change to or inaccuracy in the information in this presentation.
To the maximum extent permitted by law, each Specified Person disclaims and excludes all liability whatsoever for any loss, damage or other
consequence (whether foreseeable or not) suffered by any person from the use of the content of this presentation, from refraining from acting
because of anything contained in or omitted from this presentation or otherwise arising in connection therewith (including for negligence,
default, misrepresentation or by omission and whether arising under statute, in contract or equity or from any other cause). No Specified
Person makes any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information
contained in this presentation. You agree that you will not bring any proceedings against or hold or purport to hold any Specified Person liable
in any respect for this presentation and content of this presentation and waive any rights you may otherwise have in this respect.
Past performance
Past performance information provided in this presentation may not be a reliable indication of future performance. No guarantee of future
returns is implied or given.
Forward-looking statements
This presentation may contain certain forward-looking statements with respect to the financial condition, results of operations and business
of Synlait. Forward-looking statements can generally be identified by use of words such as ‘project’, ‘foresee’, ‘plan’, ‘expect’, ‘aim’, ‘intend’,
‘anticipate’, ‘believe’, ‘estimate’, ‘may’, ‘should’, ‘will’ or similar expressions.
All such forward-looking statements involve known and unknown risks, significant uncertainties, assumptions, contingencies, and other factors,
many of which are outside the control of Synlait, which may cause the actual results or performance of Synlait to be materially different from
any future results or performance expressed or implied by such forward-looking statements. Such forward-looking statements speak only
as of the date of this presentation. Synlait undertakes no obligation to update these forward-looking statements for events or circumstances
that occur subsequent to such dates or to update or keep current any of the information contained herein. Any estimates or projections as
to events that may occur in the future (including projections of revenue, expense, net income and performance) are based upon the best
judgement of Synlait from the information available as of the date of this presentation. Actual results may vary from the projections and such
variations may be material. You are cautioned not to place undue reliance on forward-looking statements.
Forward looking statements in this presentation are unaudited and may include non-GAAP financial measures and information. Not all of the
financial information (including any non-GAAP information) will have been prepared in accordance with, nor is it intended to comply with: (i)
the financial or other reporting requirements of any regulatory body or any applicable legislation; or (ii) the accounting principles or standards
generally accepted in New Zealand or any other jurisdiction, or with International Financial Reporting Standards. Some figures may be rounded
and so actual calculation of the figures may differ from the figures in this presentation. Some of the information in this presentation is based on
non-GAAP financial information, which does not have a standardised meaning prescribed by GAAP and therefore may not be comparable to
similar financial information presented by other entities. Non-GAAP financial information in this presentation has not been audited or reviewed.
Application has been made to NZX for permission to quote the Bonds on the NZX Debt Market and all the requirements of NZX relating
thereto that can be complied with on or before the date of this presentation have been duly complied with. However, the Bonds have not yet
been approved for trading and NZX accepts no responsibility for any statement in this presentation. NZX is a licensed market operator and
the NZX Debt Market is a licensed market, each regulated under the Financial Markets Conduct Act 2013. Synlait is an NZX non-standard (NS)
issuer because of its non-standard governance arrangements as approved by NZX.
For purposes of this notice, “presentation” shall mean the slides, any oral presentation of the slides by Synlait, any question-and-answer
session that follows that oral presentation, hard copies of this document and any materials distributed at, or in connection with, that
presentation.
The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change
without notice.
By attending or reading this presentation, you agree to be bound by the foregoing limitations and restrictions and, in particular, will be deemed
to have represented, warranted, undertaken and agreed that: (i) you have read and agree to comply with the contents of this Disclaimer and
Important Notice; (ii) you are permitted under applicable laws and regulations to receive the information contained in this presentation; (iii) you
will base any investment decision solely on the Offer Materials; and (iv) you agree that this presentation may not be reproduced in any form or
further distributed to any other person, passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose.
Synlait Milk Limited Retail Bond Presentation 3
OVERVIEW OF
THE OFFER
Synlait Milk Limited Retail Bond Presentation 4
OVERVIEW OF THE OFFER
IssuerSynlait Milk Limited (“Synlait”)
BondsUnsecured subordinated fixed rate bonds (“Bonds”)
Issue sizeUp to $150 million (plus up to $50 million of oversubscriptions)
Purpose of the OfferThe Offer will provide Synlait with diversification of funding sources to support Synlait’s growth
strategy. Net proceeds of the Offer will be advanced to Synlait Milk Finance Limited and used by
it to repay a portion of the Synlait Guaranteeing Group’s existing bank debt
GuaranteeGuaranteed by Synlait Milk Finance Limited and the guarantors under Synlait’s Bank
Facility Agreement
Term5 year Bonds maturing on 17 December 2024
Interest deferralInterest on the Bonds will be deferred if an Interest Deferral Condition exists on the relevant
Interest Payment Date
ListingNZX Debt Market under the ticker SML010
Joint Lead ManagersANZ, Deutsche Craigs, Forsyth Barr and Jarden
Co-managerHobson Wealth
Synlait Milk Limited Retail Bond Presentation 5
INTRODUCTION
TO SYNLAIT
Synlait Milk Limited Retail Bond Presentation 6
All figures in NZ$, market capitalisation as at 27 November 2019.
$1,024m
REVENUE EXCEEDED $1 BILLION FOR THE FIRST TIME IN FY19
$82.2m
FY19 NPAT ↑ 10% ON FY18
$1.7b
NZX MARKET CAPITALISATION
OUR PURPOSE
DOING MILK DIFFERENTLY FOR
A HEALTHIER WORLD
Synlait Milk Limited Retail Bond Presentation 7
0.1
11.3
4.2
22.2
38.543.8
40.9
83.7
88.8
138.6
152.1
112.2
233.4
298.9
376.8
420.0
600.5
448.1
546.9
759.0
879.0
1,024.3
-
200
40 0
600
800
1, 00 0
1, 200
FY0 9FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19
EBITDARevenue
WE ARE A GROWTH COMPANY
As we enter the next phase of
Synlait’s evolution we retain our
‘growth company’ mentality.
Synlait has grown from start-up
to 146,000 metric tonnes (MT) of
annual production volume in 11
years, growing revenue by a 25%
CAGR since FY09.
Revenue exceeded $1 billion
for the first time in FY19.
Revenue and EBITDA
NZ$ millions
Revenue growth CAGR: 25%
Synlait Milk Limited Retail Bond Presentation 8
WE ARE INVESTING FOR GROWTH
After a period of consolidation
and reducing leverage, we have
undertaken a series of major
capital projects.
We are nearing completion of a
capital investment cycle which
has seen us commit $470m to
major growth projects.
Executing these projects has
been our key focus over the last
18 months.
Net operating assets and gearing
NZ$ millionsNet Debt / EBITDA
1. Return on capital employed: EBIT / average capital employed
93.9
96.6
81.6
186.5
267.0
311.8
323.2
455.2
423.5
493.3
633.9
.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
-
10 0
200
30 0
40 0
500
600
700
FY0 9FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19
Net operat ing assetsNet debt / EBITDA
FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19
Return on capital employed
1
(pre-tax)
-3.7%3.8%0.0%7.8%12.9%11.8%7.3%14.5%14.8%22.7%18.3%
Synlait Milk Limited Retail Bond Presentation 9
OUR GEOGRAPHIC
FOOTPRINT
AUCKLAND CANNING
• Second infant formula blending and
canning facility acquired in 2017
POKENO
• Second infant formula and dairy ingredients
processing facility commissioned in
September 2019
PALMERSTON NORTH
• Research and Development staff grew from
5 to 11 during FY19
CHRISTCHURCH
• Acquisition of Dairyworks, subject to
Overseas Investment Office approval
• Leased office space in 2019
DUNSANDEL
• Main infant formula and dairy ingredients
processing facility
• Advanced liquid dairy packaging facility
operational since April 2019
TEMUKA
• Talbot Forest Cheese acquisition
completed in August 2019
Synlait Milk Limited Retail Bond Presentation 10
Nigel Greenwood
Chief Financial Officer
Leon Clement
Chief Executive Officer
Dr. Suzan Horst
Director, Quality Regulatory
And Laboratory Services
Chris France
Director, Strategy and
Transformation
Martijn Jager
Director, Sales And Business
Development
Hamish Reid
Director, Sustainability
And Brand
Deborah Marris
Director, Legal, Risk And
Governance
Boyd Williams
Director, People, Culture
And Performance
LEADERSHIP TEAM
Our Leadership Team are highly skilled and committed to our vision
and purpose.
Leon joined Synlait in August
2018. He has led major businesses
internationally, specifically in
Vietnam and Sri Lanka, and has
deep experience in the branded
dairy sector. Most recently, Leon
was Fonterra’s Managing Director
of Fonterra Brands New Zealand
and prior to that was their Managing
Director of Sri Lanka and Indian
Subcontinent.
Chris brings more than 30 years
business experience to Synlait and
is responsible for leading strategy
and business transformation. His
expertise in strategic planning,
leadership, and developing high
performing teams puts Chris in a
strong position to support Synlait’s
growth. Chris focuses on Synlait
being clear about where we want
to go, and aligned on change
programmes that will deliver on
this vision.
Nigel has had extensive experience
in finance, having held senior
executive finance roles with various
New Zealand companies. As CFO,
Nigel is responsible for finance and
funding. Prior to joining Synlait in
2010, Nigel held CFO roles with
Crane Distribution NZ Limited,
Gough Group Limited and Lyttelton
Port Company Limited.
Suzan leads our Quality,
Laboratory Services and Regulatory
function. Suzan brings a wealth
of knowledge, having most
recently been Director Quality
Affairs, Business Group EMEA for
FrieslandCampina. She held other
senior roles including Director
Corporate QA, crisis and issue
management, and Corporate
Quality Assurance Manager.
Martijn joined Synlait in September
2016 and provides leadership and
direction for sales and business
development. Martijn oversees
strategy realisation across major
new customer acquisitions, as
well as product research and
development, technical services,
category planning and account
management and sales.
Deborah joined Synlait as
the Director Legal, Risk and
Governance having global
experience through previous
roles such as Global Compliance
Managing Director with Barclays
Bank, India. Prior to that she held
senior executive roles with other
global organisations, including
as General Counsel (Asia Pacific,
Europe and America), Chief of Staff
(New Zealand) and also Head of Tax
(New Zealand) for ANZ Bank.
Hamish takes the lead on
developing Synlait’s strategy for
sustainability with a particular
focus on our aspiration to further
improve our environmental and
social performance from farm to
fridge. He will also lead our thinking
as we continue evaluating potential
B2C opportunities. Hamish has
deep experience in food and
beverage marketing, predominantly
for Danone in Paris and Saatchi &
Saatchi in London.
A senior international human
resources executive, Boyd brings
more than 30 years of experience
to Synlait’s Senior Leadership Team.
He oversees the organisational
development, human resource,
health and safety and staff facilities
functions. Prior to joining Synlait,
he was Human Resources Director
(Asia Pacific) for Bacardi Group, a
global business with more than
200 brands.
Note: Mark Toomey was recently announced as Director, Operations, effective 9 December 2019
Synlait Milk Limited Retail Bond Presentation 11
BOARD OF DIRECTORS
Our board of directors are committed to building a world class nutritional
business and the enhancement of shareholder value
Dr. John Penno
Board appointed director
Graeme Milne ONZM
Independent director, Chair
Min Ben
Bright Dairy appointed director
Bill Roest
Independent director
Qikai (Albert) Lu
Bright Dairy appointed director
Sam Knowles
Independent director
Hon. Ruth Richardson
Bright Dairy appointed director
Sihang Yang
Bright Dairy appointed director
Graeme (ONZM) joined the Synlait
Group as a director in 2006. With
extensive experience, his career
in the dairy industry has seen him
working in New Zealand, Australia
and Europe. He is the Chairman
of Synlait Milk Limited and holds
several other governance roles with
a range of organisations.
Bill was appointed to the Synlait
Milk Board in May 2013. Bill’s long
and varied career included 12
years as Chief Financial Officer
of Fletcher Building Limited until
April 2013. He has held several
leadership roles in New Zealand’s
corporate sector and currently
holds several other governance
roles with a range of organisations.
John co-founded the Synlait
Group in 2000 and was a full-time
executive for the Synlait Group
from 2006 until he stood down as
CEO in August 2018. He remains
on the Board, and as a Director
John continues to contribute to the
governance of Synlait.
Min was appointed a director of
Synlait Milk in November 2016. Min
joined Bright Dairy in 2001 and
holds a master degree of Business
Administration. Ms Ben is currently
the PR director of Bright Dairy.
Bright Dairy appointed Qikai to
represent them on the Synlait Board
in December 2015. Qikai joined
Bright in 2011 and has advised
Bright on business and governance
matters regarding Synlait since.
He is the Deputy Director of
International Business Development
for Bright and is responsible for all
overseas project management and
communications.
A professional company director,
Ruth specialises in agribusiness,
commercialising innovation and
finance. Ruth joined the Synlait
Group as the first independent
director in 2004. She currently
holds several other governance
roles and had an extensive
political career before moving into
governance.
Sam was appointed to the Synlait
Board in 2013. He has held senior
executive positions in major banks
in both Australia and New Zealand,
and is currently a director of Synlait
Milk Limited and Synlait Milk
Finance Limited. Sam’s governance
roles focus on growth businesses.
Yang was appointed a director of
Synlait Milk in August 2010. With
20 years of industry experience,
he is Bright Dairy and Food Co.’s
director of strategy and research
and director of several Bright Dairy
subsidiaries.
Synlait Milk Limited Retail Bond Presentation 12
BUSINESS
OVERVIEW
Synlait Milk Limited Retail Bond Presentation 13
DELIVER. INVEST. CLARIFY
FY19 in review
Delivering results
• Revenue exceeded $1 billion for the first time in FY19,
increasing 17% to $1,024.3 million
• Net profit increased 10% to $82.2 million, with a
stronger 2H FY19 typical of volatility observed
between half year results
• Operating cashflow increased 39% to $136.7 million
• Sales volumes increased 21,087 MT or 16% to
149,709 MT*
• Consumer packaged infant formula sales continue to
grow, up 21% to 42,907 MT
• Average milk price of $6.58 per kgMS for the
2018/2019 season, made up of a base milk price of
$6.40 and an additional $0.18 in incentive payments
Investing for the future
• $18.9 million expansion to lactoferrin facility
completed on time and budget, approximately
doubling manufacturing capacity
• $260 million infant-capable manufacturing facility in
Pokeno commissioned. Welcomed 56 farms and 77
employees at Pokeno
• $134 million advanced liquid dairy packaging facility
at Dunsandel designed, built and commissioned
within 18 months
• Talbot Forest Cheese acquisition completed on 1
August 2019
• $32 million investment to build Dry Store 4
announced – 30,000m2 warehouse at Dunsandel
which will unlock further supply chain efficiencies and
enable greater control of traceability, improve our
sustainability footprint, and result in shorter lead-
times for customers
• 218 capable and experienced people hired to help
run these facilities
Delivering results
• Launched our new purpose and brand identity: Doing
milk differently for a healthier world
• Delivered on our promise to clarify Synlait’s focus,
strategy and purpose for shareholders and staff
• Defined our formula for success. Aspirational goal to
double our business: 2 + Zero
• New strategy has eight clear strategic paths to grow
and enable our business
*Excluding fresh milk and specialty ingredients
Synlait Milk Limited Retail Bond Presentation 14
WHAT MAKES US DIFFERENT
Our unique capabilities underpin our sustainable competitive advantage
ESTABLISHEDBUILDING
Differentiated
milk supply
• A1 protein free milk
• Grass Fed™
• Lead With Pride™
Navigated complex
regulatory environments
• Track record of
providing market
access for customers,
securing regulatory
approvals for Synlait
sites, processes and
products
Focus on research,
development and
innovation
• Dedicated research
and development team
• Product development
in attractive categories
and markets a priority
• Capability to create
custom dairy products
for customers
Developed an integrated
manufacturing chain
• Operate high spec,
large scale plants
• Integrated Work
Systems (IWS)
programme driving
efficiencies
Built in quality testing
standards onsite
• Zero defects targets
• Test raw materials,
finished products and
facilities
• Full quality assurance
and traceability
Creating a sustainable
value chain
• Committed to ambitious
10-year targeats
• Greenhouse gas
inventory and pathway
to emissions reduction
established
Synlait Milk Limited Retail Bond Presentation 15
DEVELOPING A WORLD CLASS VALUE CHAIN
HIGH SPECIFICATION
SPRAY DRYERS
180,000 MT Capacity
INGREDIENTS
165,000 MT Capacity
CHEESE
LONG LIFE LIQUID AND
CULTURED
FRESH MILK
WETMIX KITCHENS
130,000 Capacity
LACTOFERRIN
34 MT Capacity
ADVANCED LIQUID
110mL Capacity
TALBOT FOREST
12,000 MT Capacity
CONSUMER PACKAGING
80,000 MT Capacity
CONTRACTED FARMS
257 Suppliers in FY20, Contracted
Approx. 77 Million kgMS
Infant Nutrition
Ingredients
Everyday Dairy
‘World Class Value
Chain’ programme of
work running across
our differentiated and
integrated value chain,
focussing on:
• Healthier Farming Practices
• Safe Food and Market Access
• Manufacturing Excellence
• Supply Chain and Planning
• Transparency
Synlait Milk Limited Retail Bond Presentation 16
DOING MILK
DIFFERENTLY FOR A
HEALTHIER WORLD
HEART
OUR PURPOSE
HEAD
OUR AMBITION
HANDS
OUR STRATEGY
2 + ZERO
Synlait Milk Limited Retail Bond Presentation 17
OUR STRATEGY
FOR A HEALTHIER
WORLD
Everyday
Dairy
Sports
Nutrition
Net Positive for
the Planet
Build a Healthier
Synlait
World Class
Value Chain
Infant
Nutrition
FoodserviceNext Big
Thing
DOING MILK
DIFFERENTLY
OUR GROWTH STRATEGY
OUR ENABLING STRATEGY
Synlait Milk Limited Retail Bond Presentation 18
DELIVERING AGAINST OUR GROWTH STRATEGY
FOR A HEALTHIER
WORLD
OUR ENABLING STRATEGY
Foodservice
STRATEGY PROGRESSED
FY19
FY20
• Advanced liquid dairy packaging
facility completed, servicing
inaugural customer
• Talbot Forest Cheese acquired
• Evaluating opportunities
• Dairyworks acquisition announced,
remains subject to OIO approval
• Extended The a2 Milk Company™
contract, effective August 2020,
providing a minimum 5-year term to
31 July 2025
• Focus on refining product portfolio
and in-market models
• 21% growth in consumer packaged
infant formula sales in FY19
• Awaiting registration of China
brands
• Lactoferrin capacity doubled,
operating in favourable
environment
• Natural extension
• Market is large and growing, with strong
demand for New Zealand provenance in
Asia
• Optimise milk solids as we create a value
stream from surplus fat
DELIVERY ON TRACKSTRATEGY DEVELOPING
Everyday
Dairy
Sports
Nutrition
Net Positive for
the Planet
Build a Healthier
Synlait
World Class
Value Chain
Infant
Nutrition
FoodserviceNext Big
Thing
DOING MILK
DIFFERENTLY
OUR GROWTH STRATEGY
Synlait Milk Limited Retail Bond Presentation 19
DELIVERING AGAINST OUR ENABLING STRATEGY
DOING MILK
DIFFERENTLY
OUR GROWTH STRATEGY
FOR A HEALTHIER
WORLD
OUR ENABLING STRATEGY
Everyday
Dairy
Sports
Nutrition
Net Positive for
the Planet
Build a Healthier
Synlait
World Class
Value Chain
Infant
Nutrition
Foodservice
FY19
FY20
• Published Greenhouse Gas (GHG)
inventory
• Workplan towards 2028 climate and
water targets established
• Commissioned New Zealand’s first
large scale electrode boiler
• Released an update on Synlait’s
sustainability strategy and progress
to date
• Secured New Zealand’s first ESG
linked loan
• Pursuing B Corp Certification
• Construction of Dry Store 4 underway, on
time and on budget, expected to deliver
supply chain efficiencies
• Injury rate reduced 28% in FY19
compared to FY18
• Launched programme to live our
purpose: Whakapuāwai
• Full reset of processes and systems
underway
• Built three new facilities
• IWS generating efficiencies and capacity
increases
• Opened new China office to resource
sales and regulatory capabilities
• 43 new Lead With Pride
TM
farms certified
Next Big
Thing
Synlait Milk Limited Retail Bond Presentation 20
CHALLENGESAPPROACH / UPDATE
1. Uncertainty remains regarding the covenants over the land
at Synlait Pokeno
• Supreme Court hearing set for April 2020
• Maintain discussions with all parties
• First milk processed at Pokeno facility in September 2019
• Refer Appendix for timeline of the process to date
2. Uncertainty remains regarding SAMR registrations for
Akara and Pure Canterbury
• Continue to support The a2 Milk Company’s™ growth in China
• Focus on developing new customer, product and market combinations
• Strengthening regulatory relationships in China
3. Performance of the advanced liquid dairy packaging facility
at Dunsandel fell short of expectations in FY19 due to initial
commissioning challenges, incurring a $3.5 million loss
• Performance of fresh milk stabilised
• Focus on UHT commissioning – still expecting initial sales late FY20
4. Confident in customer pipeline, but significant new,
announceable and material agreements are yet
to materialise
• Recognise we have significant capacity to fill following commissioning of advanced liquid dairy
packaging facility at Dunsandel and second infant capable manufacturing facility at Pokeno
• Teams remain focused on developing new opportunities with existing and new customers
5. Evolving regulatory environment in our industry is expected
to create on farm challenges (e.g. National Policy Statement
for Freshwater Management and Zero Carbon Bill)
• We believe our proactive approach to sustainable farming practices means we are well
positioned to respond to any regulatory changes
• Synlait milk supply and sustainability teams are actively working together on the creation and
rollout of sustainability programmes
CHALLENGES WE ARE WORKING ON
Challenges presented at our FY19 results and how we are approaching them
Synlait Milk Limited Retail Bond Presentation 21
FINANCIAL
PERFORMANCE
Synlait Milk Limited Retail Bond Presentation 22
11.0
35.7
39.5
74.6
82.2
-
10
20
30
40
50
60
70
80
90
FY15FY16FY17FY18FY19
Net Profit after Tax
4,305
15,999
18,776
35,580
42,907
-
1 0, 0 00
20,000
30,000
40,000
50,000
FY15FY16FY17FY18FY19
IFC Sales (MT)
101,669
120,746
135,395
139,485 146,299
-
20,000
40,000
60,000
80,000
100,000
120,000
1 40, 0 00
160,000
FY15FY16FY17FY18FY19
Production Volumes (MT)
5-YEAR PERFORMANCE
Synlait has a track record of delivering
earnings growth by investing in our
differentiated value chain to meet
customer needs
• This has translated into growth in net profit
that has exceeded growth in overall production
volumes as Synlait has moved up the value chain
• In the past five years we have:
• Increased total production volumes by
nearly 50%
• Increased consumer packaged infant formula
(IFC) sales by nearly 900%
• Increased net profit by 650%
NZ$ millions
Synlait Milk Limited Retail Bond Presentation 23
98.4
13.5
(12.8)
36.9
0.7136.7
FY18EBITDATaxWorking
Capital
OtherFY19
0
20
40
60
80
100
120
140
160
Operating cash flow bridge
104.4
115.2
98.4
136.7
-
20.0
40.0
60 .0
80.0
10 0.0
120 .0
140.0
160 .0
FY16FY17FY18FY19
Operating cashflow
OPERATING CASH FLOW
Net cash inflow from operating activities
increased by $38.3 million to $136.7
million from $98.4 million last year
• Cashflow generation driven by an increase in
operating profit and a favourable movement in
working capital
• Working capital movement a function of:
• Inventory management efficiencies
• Continued benefits from receivables purchase
programme, with the year end balance
increasing to $109 million as at 31 July 2019,
including adding Nestle to the programme
$ millions
$ millions
Synlait Milk Limited Retail Bond Presentation 24
114.9
309.3
29.1
(136.7)
16.80.1333.6
FY18
Net
Debt
Investment
Capex
Investments &
Intangibles
Operating
Cash
Flow
InterestSale of
PPE
FY19
Net
Debt
0
50
100
150
200
250
300
350
400
450
500
Net debt bridge
213.9
82.6
114.9
333.6
2.5x
0.9x
0.8x
2.2x
-
0.5x
1.0x
1.5x
2.0x
2.5x
3 .0 x
3 .5 x
4 .0 x
0
50
100
150
200
250
300
350
400
FY16 FY17 FY18 FY19
Net debt
Net DebtLeverage Ratio
NET DEBT
Synlait is targeting investment grade financial metrics and
total leverage ratio below 2.5x over the long term
Synlait’s asset base has been built through large capital
projects, where leverage increases and then reduces as
cashflows are delivered from the operation of
those assets
• Net debt increased by $219 million to $333.6 million
in FY19 as Synlait’s significant investment in major
growth and operational projects continued
• As at 31 July 2019, major projects were largely
complete:
• Pokeno manufacturing facility: $221 million of $279
million spend completed
(1)
• Liquid dairy packaging facility: $115 million of $134
million spend completed
• Lactoferrin plant upgrades: Spend completed
during FY19
• Talbot Forest Cheese: $18.0 million of $37.8 million
spend completed (settlement occurred on 1
August 2019)
$ millions
$ millions
(2)
1. Synlait processed first milk at Pokeno in September 2019. Includes land value.
2. Leverage ratio: Total debt / EBITDA
Synlait Milk Limited Retail Bond Presentation 25
Potential customersSynlait is regularly in discussions with a range of potential customers. These currently include discussions with multinational
consumer products and healthcare businesses in relation to the possible supply by Synlait of finished nutritional products
or nutritional product ingredients. These types of discussions are a core part of diversifying and growing our business, and
at any point in time will be at various stages of development. As these discussions with potential customers are currently
incomplete, there is no assurance that any contracts will be entered into. If a contract is entered into, Synlait may incur
additional capital expenditure and/or generate incremental earnings that may have a net positive impact on the business and
its financial performance. Synlait will make further announcements when appropriate.
Enterprise Resource Planning systemSynlait is currently undertaking a project to upgrade its Enterprise Resource Planning (ERP) system. The project is expected to
run for another 18-24 months and require capex of circa $23 million.
MunchkinSynlait is currently in discussions with Munchkin regarding options and opportunities for Munchkin’s ANZ Infant Formula
business. There is no assurance any transaction will eventuate from these discussions. Synlait has an ongoing agreement with
Munchkin which remains in place, and will make further announcements when appropriate.
Dunsandel farm purchaseSynlait is currently evaluating the acquisition of two farms which neighbour Synlait’s Dunsandel site. The acquisition is
expected to cost ~$25-30 million. If agreement is reached, settlement is expected to take place in 2020 subject to receipt of
Overseas Investment Office approval.
Lactoferrin pricingThe favourable market pricing environment experienced in FY19 has continued into early FY20. Synlait does not expect
pricing will be sustained at the current elevated levels as additional supply is expected to enter the market.
PROJECT UPDATES
Outside the major growth projects, Synlait has several strategic projects
which may result in associated capital expenditure:
Synlait Milk Limited Retail Bond Presentation 26
STRUCTURE
Synlait Milk Limited Retail Bond Presentation 27
INTEREST DEFERRAL AND EVENTS
OF DEFAULT
The Bonds have an Interest
Deferral Term
1. The payment of interest on the Bonds on an Interest
Payment Date (other than a date on which the Bonds
are Redeemed) is subject to no Interest Deferral
Condition existing on the Interest Payment Date
2. An Interest Deferral Condition exists if:
• Synlait does not, or would not after making the
interest payment, satisfy the solvency test under
the Companies Act 1993; or
• An event of default, cancellation of more than
$35 million of commitments following an event of
review or breach has occurred in any agreement
made with or for the benefit of a Senior Creditor
(e.g. breach of a bank covenant), or one would
occur after making the interest payment
3. There is no Event of Default if interest on the Bonds
is not paid because of an Interest Deferral Condition
4. Any interest that is not paid because of an Interest
Deferral Condition will earn interest at the
Interest Rate
Event of Default
The Events of Default in the Trust Deed include:
• Failure by Synlait to make a payment in respect of the
Bonds, subject to grace periods
• Cross default in respect of borrowed money, of more
than $35 million, if not paid when due
• Failure by Synlait to comply with the restriction
on dividends, distributions, capital reductions and
financial assistance where interest has been deferred
• Failure by Synlait or any Guarantor to comply in a
material respect with any obligation under the Trust
Deed which has or is likely to have a material adverse
effect on repayment of the Bonds
• Synlait or any Guarantor making a material
misrepresentation under the Trust Deed where the
circumstances have or are likely to have a material
adverse effect on the repayment of the Bonds
• Certain insolvency events
Synlait has four key bank
covenants in place within its
Bank Facility Agreement:
1. Interest cover ratio – EBITDA to interest expense of
no less than 3.0x based on full year forecast result
2. Minimum shareholders funds – must exceed
$295.5 million
3. Working capital ratio – inventory and debtors to
working capital facility outstanding of no less
than 1.5:1
4. Leverage ratios – Senior debt to EBITDA is not
greater than 3.0x. Total debt to EBITDA is not greater
than 4.0x
Synlait Milk Limited Retail Bond Presentation 28
225225
150150
100100
100100
60
120
0
100
20 0
300
400
50 0
60 0
7 00
80 0
FY 2 0FY 2 1FY 2 2FY 2 3FY 2 4FY2 5
$ millions
Synlait Group's available debt facilities (pre-Offer)
Working Capital FacilityRevolving Credit Facility ARevolving Credit Facility B & C
Revolving Credit Facility DTerm Facility
PURPOSE OF THE OFFER
Synlait is seeking to raise up to $150
million, with oversubscriptions of up to
$50 million
• The net proceeds of the Offer will be advanced to Synlait Milk
Finance Limited and used to repay a portion of the Synlait
Guaranteeing Group’s existing bank debt
• The Bonds will provide diversification of funding sources and
tenor, and be used to support Synlait’s growth strategy
• The interest and principal amount of the Bonds will be excluded
from Synlait’s Bank Facility Agreement senior covenant
calculations but included in total debt covenant calculations
Assuming net proceeds of at least $180 million are raised under the
Offer, following application of those proceeds to repay a portion of
bank drawings and the cancellation of some existing facilities, the
senior loan facilities under the Bank Facility Agreement will be:
• Seasonal Working Capital Facility with a limit of $250 million; and
• Revolving Credit Facilities with an aggregate limit of $250 million.
$ millions
$ millions
Synlait Guaranteeing Group’s debt maturity profile (pre-Offer)
Synlait Guaranteeing Group’s debt maturity profile (post-Offer)
250250
150150
100100
100100
150150
150150
150150
5050
5050
5050
0
100
20 0
300
400
50 0
60 0
7 00
80 0
FY 2 0FY 2 1FY 2 2FY 2 3FY 2 4FY2 5
$millions
Synlait Group's available debt facilities (post-Offer)
Working Capital FacilityRevolving Credit Facility ARevolving Credit Facility B & CBo nd Iss ueBo nd Iss ue
Synlait Milk Limited Retail Bond Presentation 29
ISSUER AND GUARANTEEING GROUP
The Bonds will be guaranteed by the Guarantors
• On the issue date of the Bonds the Guarantors will be
Synlait Milk Finance Limited, The New Zealand Dairy
Company Limited, Eighty Nine Richard Pearse Drive
Limited and Synlait Foods (Talbot Forest) Limited
• Any other subsidiary of Synlait that becomes or is
required to become a guarantor under the Bank
Facility Agreement before the Maturity Date is also
required to become a Guarantor e.g. Dairyworks
Limited if the acquisition is completed
• The Synlait Guaranteeing Group’s senior bank
debt, other secured borrowed money and other
creditors preferred by law will be paid in priority to
Bondholders in the event of liquidation
• In a liquidation event, however, Bondholders
would rank in priority to subsidiary equity and
liabilities that rank below the Bonds, and equal
ranking to unsubordinated creditors in respect of
borrowed money
Synlait Group on issue of the Bonds
Guarantors of Bank Facility Agreement (on a secured basis) and of Bonds (on an unsecured
subordinated basis)
100%
(Bank Borrower)
100%100%100%
Synlait Milk Limited
Listed Bond Issuer
Main operating
company, including
Dunsandel facilities
Synlait Foods
(Talbot Forest)
Limited
The New Zealand
Dairy Company
Limited
Eighty Nine
Richard Pearse
Drive Limited
Synlait Milk
Finance Limited
Talbot Forest
Cheese
Non-Trading
Entity
Auckland
Canning Land
and Buildings
Finance
Company
Synlait Milk Limited Retail Bond Presentation 30
OFFER TERMS
AND TIMETABLE
Synlait Milk Limited Retail Bond Presentation 31
KEY TERMS OF THE OFFER
IssuerSynlait Milk Limited (“Synlait”)
BondsUnsecured subordinated fixed rate bonds (“Bonds”)
Issue sizeUp to $150 million (plus up to $50 million of oversubscriptions)
GuaranteeGuaranteed by Synlait Milk Finance Limited and the guarantors under Synlait’s Bank Facility Agreement
Term5 year bonds maturing on 17 December 2024
Interest RateSum of the applicable issue margin and the applicable swap rate. The Interest Rate will be no lower than the Minimum Interest Rate. The Interest Rate will be set following
a bookbuild on 6 December 2019
Interest PaymentsQuarterly in arrear in four equal payments, subject to no Interest Deferral Condition existing on the relevant Interest Payment Date
Interest deferralInterest on the bonds will be deferred if an Interest Deferral Condition exists on the relevant Interest Payment Date
Dividend stopperThe payment of certain amounts by Synlait to shareholders (e.g. dividends) and creditors that rank behind the Bonds (if any) is restricted if interest is not paid on the Bonds
when scheduled
Change of ControlBondholders may elect to be redeemed by Synlait at the greater of the Redemption Amount or market price if a Change of Control event occurs
A Change of Control event occurs if an offer is made to acquire all or some of Synlait’s shares which would result in the offeror holding or controlling more than 50% of the
voting rights of Synlait
Synlait may elect to Redeem all Bonds early if fewer than $50 million Bonds remain outstanding
However, no redemption as a result of a Change of Control event is permitted if an Interest Deferral Condition exists or would exist if the redemption was made
Early RedemptionThe Bonds will be Redeemed prior to the Maturity Date:
• at Synlait’s election if a Tax Event occurs provided no Interest Deferral Condition exists or would exist if the redemption was made;
• at the option of an individual Bondholder after a Change of Control Event provided no Interest Deferral Condition exists or would exist if the redemption was made; or
• following an Event of Default
Brokerage0.75% of the amount issued plus 0.50% on firm allocations, paid by Synlait
Minimum Denominations$5,000 and in multiples of $1,000 thereafter
For more information on the above key terms please refer to Sections 3.1 of the PDS (Terms of the Offer) and 5 of the PDS (Key Features of the Bonds)
Synlait Milk Limited Retail Bond Presentation 32
KEY DATES OF THE OFFER
PDS Lodgement29 November 2019
Firm bids due6 December 2019, 12.00pm
Rate set date6 December 2019
Opening date9 December 2019
Closing date13 December 2019
Issue date17 December 2019
Expected date of quotation on NZX Debt Market18 December 2019
Interest payment dates17 March, 17 June, 17 September, 17 December
First interest payment date17 March 2020
Maturity date17 December 2024
Synlait Milk Limited Retail Bond Presentation 33
SYNLAIT CREDIT HIGHLIGHTS
1.Synlait is a NZX and ASX listed company with an NZX market capitalisation of NZ$1.7b
(1)
that produces a range of
nutritional milk products for global customers, including The a2 Milk Company
TM
2.Synlait has built a track record of delivering earnings growth and high returns on capital
3.Investing for the future, executing a number of large-scale capital projects supported by new and existing
customer commitments and acquisitions including Talbot Forest Cheese and Dairyworks
4.Delivering on an earnings, site and category diversification strategy
5.Purpose of ‘Doing milk differently for a healthier world’ captures the company’s growth and enabling strategies,
highlighting its unique, differentiated and integrated value chain and sustainability focus
6.Experienced Board and management team
7.Internal policy to maintain shadow investment grade credit metrics through the cycle – targeting a total leverage ratio
of less than 2.5x over the long term
1. Market capitalisation as at 27 November 2019
Synlait Milk Limited Retail Bond Presentation 34
APPENDIX
Synlait Milk Limited Retail Bond Presentation 35
POKENO UPDATE
Timeline of the process to date
February 2018
Synlait announced the conditional purchase of 28 hectares of land in Pokeno to establish our second nutritional powder manufacturing site. It was the
vendor’s responsibility to have the covenants removed
November 2018
High Court removed covenants over the land which required the land to be maintained as rural. The High Court declined to award compensation to the
covenant holder on the basis that they would not suffer any loss as the covenants were of little practical value. Synlait then took legal title to the land
May 2019
Court of Appeal overturned the High Court decision to remove the historic covenants
June 2019
Synlait filed an application for leave to appeal to the Supreme Court to have this decision overturned
August 2019
Supreme Court advised there will be an oral hearing prior to a decision on whether leave to appeal the reinstatement of the land covenants on the site
by the Court of Appeal will be granted
September 2019
Synlait confirmed that a reasonable settlement offer had been made and reinforced it remained comfortable with its legal position. Synlait determined,
and the auditors agreed, that no provision was required under the accounting standards in its full year 2019 financial statements. Synlait also announced
it processed the first milk at Pokeno in September
October 2019
Supreme Court announced it will hear the case surrounding Synlait’s Pokeno land
November 2019
Supreme Court announced it will hear the case on Wednesday 29 and Thursday 30 April 2020
Synlait Milk Limited Retail Bond Presentation 36
INVESTORS
Hannah Lynch
Corporate Affairs Manager
+64 21 252 8990
hannah.lynch@Synlait.com
MEDIA
Linda Chalmers
Senior Communications Advisor – External
+64 21 951 347
linda.chalmers@synlait.com
---
1
This document gives you important information about this
investment to help you decide whether you want to invest.
There is other useful information about this offer on
www.companies.govt.nz/disclose, offer number (OFR12776).
Synlait Milk Limited has prepared this document in accordance
with the Financial Markets Conduct Act 2013. You can also
seek advice from a financial adviser to help you to make an
investment decision.
PRODUCT
DISCLOSURE
STATEMENT
OFFER OF UNSECURED SUBORDINATED FIXED
RATE BONDS BY SYNLAIT MILK LIMITED
29 NOVEMBER 2019
JOINT LEAD MANAGERS
CO-MANAGER
1
1. KEY INFORMATION
SUMMARY
1.1 WHAT IS THIS?
This is an offer (the Offer) of unsecured subordinated fixed rate
five year bonds (the Bonds). The Bonds are debt securities issued
by Synlait Milk Limited (Synlait). You give Synlait money, and in
return Synlait promises to pay you interest and repay the money
at the end of the term. If Synlait runs into financial trouble, you
might lose some or all of the money you invested.
1.2 ABOUT SYNLAIT
Synlait is a dairy manufacturer with a focus on supplying high
value fully finished infant formulas and dairy ingredients to leading
milk-based health and nutrition companies internationally. Synlait
has recently entered into the Everyday Dairy category, supplying
fresh milk and cream to Foodstuffs South Island Limited as well as
manufacturing both bulk and speciality cheeses. Synlait's purpose
is: 'Doing milk differently for a healthier world'. Synlait is listed on
the NZX and the ASX with its shares trading under the tickers SML
and SM1 respectively. As at 28 November 2019 Synlait has an NZX
market capitalisation of approximately $1.7 billion.
1.3 PURPOSE OF THIS OFFER
The net proceeds of this Offer will be advanced to Synlait Milk
Finance Limited and used by it to repay and cancel a portion of
the Synlait Guaranteeing Group's existing bank debt. The Offer
will also provide diversification of funding sources to support
Synlait's growth strategy.
See section 4 of this PDS (Purpose of the Offer) for more
information.
IssuerSynlait Milk Limited
Description of the BondsUnsecured, subordinated fixed rate bonds
See section 5.2 of this PDS (Ranking) for more information on the extent of subordination of
the Bonds
Term5 years, maturing on 17 December 2024
Offer amountUp to $150 million (with the ability to accept oversubscriptions of up to $50 million at Synlait's
discretion)
Interest RateThe Bonds will pay a fixed rate of interest from the Issue Date to but excluding the Maturity
Date, subject as described under Deferral of Interest below
The Interest Rate will be set at the sum of the Swap Rate plus the Issue Margin, but in any case
will be no less than the Minimum Interest Rate, and will be announced via the NZX on or about
the Rate Set Date
See section 2 of this PDS (Key Dates) and section 3.1 (Terms of the Offer)
Issue MarginThe Issue Margin will be determined by Synlait in conjunction with the Joint Lead Managers
following the Bookbuild, and announced via NZX on or about the Rate Set Date
Interest payments Quarterly in arrear on 17 March, 17 June, 17 September and 17 December each year (or if that
scheduled day is not a Business Day, the next Business Day), with the First Interest Payment
Date being 17 March 2020, subject as described under Deferral of Interest below
Deferral of interestThe payment of interest on an Interest Payment Date (other than a date on which the Bonds are
repaid) is subject to no Interest Deferral Condition existing on the relevant Interest Payment Date
See section 5.5 of this PDS (Interest deferral)
Dividend StopperThe payment of certain amounts by Synlait to shareholders (e.g., dividends) and creditors that
rank behind the Bonds (if any) is restricted if interest is not paid on the Bonds when scheduled
See section 5.6 of this PDS (Dividend stopper)
1.4 KEY TERMS OF THE OFFER
2
Early RedemptionThe Bonds will be Redeemed by Synlait prior to the Maturity Date:
• at Synlait's election if a Tax Event occurs;
• at the option of an individual Bondholder after a Change of Control Event;
• at Synlait's election if fewer than 50 million Bonds will be outstanding as a result of
Redemption elections made by Bondholders after a Change of Control Event; or
• following an Event of Default, at the option of the Supervisor, who must exercise that option
if directed by a Special Resolution of Bondholders
However, no Redemption as a result of a Tax Event or a Change of Control Event is permitted if
an Interest Deferral Condition exists or would exist if the Redemption was made.
See section 5 of this PDS (Key features of the Bonds)
Opening Date 9 December 2019
Closing Date 13 December 2019 at 5.00pm
Minimum application amount$5,000 and multiples of $1,000 thereafter
Further payments, fees or
charges
Taxes may be deducted from interest payments on the Bonds. See section 7 of this PDS (Ta x)
You are not required to pay brokerage or any other fees or charges to Synlait to purchase the Bonds.
However, you may have to pay brokerage to the firm from whom you receive an allocation of Bonds
1.5 WHO IS RESPONSIBLE FOR PAYING YOU?
Synlait is responsible for paying interest on the Bonds and for the
repayment of the Bonds.
The Bonds will be guaranteed by Synlait Milk Finance Limited and
the guarantors under the Bank Facility Agreement (the Guarantors).
As at the Issue Date, the Guarantors will be Synlait Milk Finance
Limited, The New Zealand Dairy Company Limited, Eighty Nine
Richard Pearse Drive Limited and Synlait Foods (Talbot Forest)
Limited. The only other subsidiary of Synlait is Synlait Business
Consulting (Shanghai) Limited and it will not be a Guarantor on the
Issue Date. Any subsidiary of Synlait that becomes, or is required to
become, a guarantor under the Bank Facility Agreement before the
Maturity Date is also required to become a Guarantor. A Guarantor
may be released if it has ceased to be, and is no longer required to
be, a guarantor under the Bank Facility Agreement and no Event of
Default has occurred or is continuing without waiver.
See section 5.3 of this PDS (Guarantees) for more information.
1.6 HOW YOU CAN GET YOUR MONEY OUT EARLY
Bonds may be Redeemed prior to the Maturity Date in the limited
circumstances set out below:
• you may elect that Synlait Redeems all of your Bonds if a
Change of Control Event takes place before the Maturity Date;
• Synlait may elect to Redeem all of your Bonds early:
• if fewer than 50 million Bonds will be outstanding as a
result of Redemption elections made by Bondholders
after a Change of Control Event; or
• on the occurrence of a Tax Event,
(however, no Redemption as a result of a Tax Event or a Change of
Control Event is permitted if an Interest Deferral Condition exists or
would exist if the Redemption was made); and
• the Supervisor may elect (and must elect if directed by a Special
Resolution of Bondholders) to Redeem all of your Bonds early
on the occurrence of an Event of Default which is continuing.
See section 5 of this PDS (Key features of the Bonds) for more
information.
Synlait intends to quote these Bonds on the NZX Debt Market.
This means you may be able to sell them on the NZX Debt Market
before the end of their term if there are interested buyers. If you
sell your Bonds, the price you get will vary depending on factors
such as the financial condition of Synlait and movements in the
market interest rates. You may receive less than the full amount
that you paid for them.
1.7 HOW THE BONDS RANK FOR REPAYMENT
The Bonds are referred to as subordinated bonds because they are
subordinated to amounts owing to Senior Creditors in a liquidation.
However, the Bonds are not subordinated to other indebtedness. In a
liquidation of Synlait, your claim for payment of your Bonds will rank:
• behind indebtedness owing under the Bank Facility
Agreement, other secured borrowed money (including any
senior secured bonds that may be issued by Synlait in the
future) and other claims preferred by law. Synlait and the
Guarantors may, without the consent of Bondholders or the
Supervisor, incur further indebtedness, including to the Bank
Facility Lenders (as at the date of this PDS, ANZ Bank New
Zealand Limited and Bank of New Zealand), from time to
time which ranks in priority to the Bonds;
3
1.7 HOW THE BONDS RANK FOR REPAYMENT (Continued)
• equally with other Bondholders and with all unsecured and
unsubordinated financial indebtedness of Synlait (e.g., any
other bonds ranking equally with the Bonds that may be
issued by Synlait in the future); and
• ahead of claims of holders of ordinary shares in Synlait
and holders of securities and other financial products and
financial indebtedness that rank after the Bonds (including
any bonds ranking behind the Bonds that may be issued by
Synlait in the future).
The Guarantee will be unsecured and subordinated to the extent
that, in a liquidation of the Issuing Group, Senior Creditors will be
entitled to be paid in priority to Bondholders receiving payment
under the Guarantee.
Further important information on the ranking of the Bonds on a
liquidation of Synlait can be found in section 5 of this PDS (Key
features of the Bonds).
1.8 NO SECURITY
The Bonds are not secured against any asset of Synlait.
The obligations of the Guarantors under the Guarantee are not
secured against any asset of the Guarantors.
1.9 KEY RISKS AFFECTING THIS INVESTMENT
Investments in debt securities have risks. A key risk is that Synlait
does not meet its commitments to repay you or pay you interest
(credit risk). Section 6 of this PDS (Risks of investing) discusses
the main factors that give rise to the risk. You should consider if
the credit risk of these debt securities is suitable for you.
The interest rate for these Bonds should also reflect the degree
of credit risk. In general, higher returns are demanded by
investors from businesses with higher risk of defaulting on their
commitments. You need to decide whether the Offer is fair. Synlait
considers that the most significant risk factors are:
• Customer Concentration Risk: The a2 Milk Company
Limited (The a2 Milk Company) is Synlait's most significant
customer and contributor to financial performance. Synlait's
operations and financial performance would therefore be
adversely impacted if The a2 Milk Company reduces order
quantities from Synlait, or an event occurs which adversely
affects The a2 Milk Company.
• China Market Access Risk: Synlait understands that
a significant proportion of both its infant nutrition and
ingredient sales are ultimately consumed in China. If
Synlait's products were no longer able to be sent into China,
either directly or indirectly (e.g., via Synlait customers or
through Daigou channels), this could have a significant
adverse effect on Synlait's financial performance.
• Category Concentration Risk: Consumer-packaged infant
formula represented over 40% of Synlait's revenue in
FY2019. Synlait also produces a range of specialised and
infant-grade ingredients which are used in infant formula
production. A material and continuing drop in demand for
Synlait's products could have a significant adverse effect on
Synlait's financial performance.
• Implementation of Diversification and Growth: Synlait has
invested in major projects in order to diversify its product
categories, customers and geographic destinations into which
it delivers its products. There is a risk that Synlait may not
be able to drive profitability from major capital investments
(either as quickly as forecast or at all), which could have a
significant adverse impact on Synlait's financial performance.
• Product Safety Risk: There is a risk that Synlait's products
could become, or were perceived to become, unsafe
for consumption due to contamination. This could cause
consumers of Synlait's products to become unwell, result in
product recall or result in adverse publicity about Synlait and
its products. This could have an adverse impact on Synlait's
reputation and existing licences, and therefore Synlait's
operations and financial performance.
• Site and Plant Concentration Risk: Synlait's main infant
powder manufacturing facility is located at Dunsandel. Any
event that resulted in significant damage or destruction to
the Dunsandel facility, which meant that plant and/or facility
was unable to operate, could have an adverse impact on
Synlait's operational and financial position.
• Lactoferrin Pricing Risk: The sale of lactoferrin (a high value,
specialty ingredient used in a range of nutritional food products
(including infant formula) produced by Synlait) contributed
materially to Synlait's FY2019 gross profit. Lactoferrin sale prices
are volatile, and are currently high, although Synlait expects
prices to fall with increased supply coming into the market.
Material and long-term changes in lactoferrin prices could have
a significant adverse impact on Synlait's financial performance.
• Milk Supply Risk: Synlait's milk supply comes from
approximately 250 farmers, located in the Canterbury
and Waikato regions in New Zealand. If Synlait is not able
to obtain milk, due to its farmer suppliers deciding to
supply other milk processors in New Zealand, or an event
occurring which affects dairy herds in those regions (or
throughout New Zealand), Synlait's operations and financial
performance could be adversely impacted.
This summary does not cover all of the risks of investing in the
Bonds. You should also read section 6 of this PDS (Risks of
investing) and section 5 of this PDS (Key features of the Bonds).
1.10 NO CREDIT RATING
Synlait's creditworthiness has not been assessed by an approved
rating agency. This means that Synlait has not received an
independent opinion of its capability and willingness to repay its
debts from an approved source.
1.11 WHERE YOU CAN FIND OTHER MARKET
INFORMATION ABOUT SYNLAIT
The Offer is being made under a short-form disclosure process that
Synlait is permitted to use because the Bonds rank in priority to
existing quoted financial products of Synlait. The existing quoted
financial products are ordinary shares in Synlait, which are traded on
the NZX Main Board and the ASX. Synlait is subject to a disclosure
obligation that requires it to notify certain material information to
the NZX for the purpose of that information being made available to
participants in the market. Synlait's NZX issuer page, which includes
information made available under the relevant disclosure obligation
referred to above, can be found at www.nzx.com/companies/SML.
4
CONTENTS
1. KEY INFORMATION SUMMARY 1
2. KEY DATES AND OFFER PROCESS 6
3. TERMS OF THE OFFER 7
4. PURPOSE OF THE OFFER 10
5. KEY FEATURES OF THE BONDS 11
6. RISKS OF INVESTING 16
7. TAX 22
8. WHO IS INVOLVED? 21
9. HOW TO COMPLAIN 23
10. WHERE YOU CAN FIND
MORE INFORMATION 23
11. HOW TO APPLY 23
12. CONTACT INFORMATION 24
13. GLOSSARY 25
5
LETTER FROM THE CHAIR
Dear Investor,
On behalf of the Synlait Board of Directors (Board), I am
pleased to offer you the opportunity to invest in the unsecured
subordinated fixed rate five year bonds (Bonds) which will be
issued by Synlait Milk Limited.
From its roots as a Dunsandel dairy farming company, over the
past 11 years Synlait has grown from a start-up to a company
now generating in excess of $1 billion of annual revenue. Synlait
operates from two milk powder manufacturing locations in New
Zealand, producing a range of nutritional and every day dairy milk
products for its global customers.
The announcement in Synlait's full year 2019 financial result
(FY2019) that revenue had exceeded $1 billion for the first time
was driven by its sustained investments to support growth. Synlait
is now focussing on delivering returns on the projects it has
invested in during FY2019, which included finishing construction
of its second infant-capable manufacturing facility in Pokeno,
doubling capacity of the lactoferrin facility and commissioning of
the advanced liquid dairy packaging facility in Dunsandel, and the
acquisition of Talbot Forest Cheese.
To date in FY2020 Synlait has announced a $32 million investment
to build a fourth drystore at Dunsandel, and the acquisition of
Dairyworks Limited for approximately $112 million. The acquisition
of Dairyworks remains subject to Overseas Investment Office
approval, with the purchase to be funded from capacity available
under our Bank Facility Agreement. Once completed, Dairyworks
will provide Synlait with a meaningful move towards the delivery
of its Everyday Dairy strategy, with approximately 230 additional
people joining Synlait in its purpose of: Doing milk differently for a
healthier world.
Synlait has developed a track record of delivering returns on
capital by investing in a differentiated value chain to meet
customer needs. The Board believes that now is an appropriate
time to issue Bonds, which will be used to repay a portion of our
existing bank debt, provide diversification of funding and capital
structure flexibility, whilst providing an interest-bearing investment
option to investors wishing to invest in Synlait. Synlait is seeking to
raise $150 million of Bonds under the offer with the ability to accept
an additional $50 million of oversubscriptions.
There are risks associated with this offer of Bonds that may affect
your returns and repayment of your investment. An overview of the
key risks affecting this investment is set out in section 6 (Risks of
Investing) of this product disclosure statement (PDS). You should
carefully read this PDS and consider if the credit risk of these Bonds
is suitable for you before deciding whether to invest in the Bonds.
I encourage you to seek financial, investment or other advice from
a qualified professional adviser as you consider this offer.
On behalf of the Board, I welcome your involvement in this offer
and your support of Synlait. For more information, please visit
Synlait’s website www.synlait.com/bondoffer.
Kind regards,
Graeme Milne ONZM
Chair
6
Lodgement Date29 November 2019
Announcement of Minimum
Interest Rate and indicative
Issue Margin
29 November 2019
Rate Set Date 6 December 2019
Opening Date 9 December 2019
Closing Date 13 December 2019 at 5.00pm
Issue Date 17 December 2019
Expected date of initial
quotation and trading of
the Bonds on the NZX
Debt Market
18 December 2019
Interest Payment Dates 17 March, 17 June, 17 September and 17 December in each year
1
First Interest Payment Date 17 March 2020
Maturity Date 17 December 2024
2
Notes to table:
1. If any scheduled Interest Payment Date is not a Business Day, payment will be made on the next Business Day subject to there being no Interest Deferral
Condition existing on the Interest Payment Date applicable to that payment.
2. Unless Redeemed before the Maturity Date as permitted under the Trust Deed. See section 5 of this PDS (Key features of the Bonds).
2. KEY DATES AND OFFER PROCESS
2.1 KEY DATES
The timetable is indicative only and subject to change. Synlait
may, in its absolute discretion and without notice, determine
to vary the timetable (including by deferring the Rate Set Date,
opening or closing the Offer early and extending the Closing
Date). Changes will be advised by way of announcement through
NZX.
If the Closing Date is extended, the Issue Date, the expected date
of initial quotation and trading of the Bonds on the NZX Debt
Market, the Interest Payment Dates and the Maturity Date may
also be extended.
7
IssuerSynlait Milk Limited
Description of the BondsUnsecured, subordinated fixed rate bonds
Offer amount Up to $150 million (with the ability to accept oversubscriptions of up to $50 million at
Synlait's discretion).
The final Offer amount will be determined by Synlait in conjunction with the Joint Lead
Managers and announced via NZX on or about 6 December 2019
Issue price$1.00 per Bond, being the Principal Amount of each Bond
Maturity dateTuesday, 17 December 2024 (five year term)
Who may apply
under the Offer
All of the Bonds offered under the Offer (including any oversubscriptions) have been reserved
for subscription by clients of the Joint Lead Managers, Co-Manager, NZX Firms and other
approved financial intermediaries invited to participate in the Bookbuild
There will be no public pool for the Bonds
RankingOn a liquidation of Synlait, the Bonds will rank:
• behind indebtedness owing under the Bank Facility Agreement, other secured borrowed
money and other claims preferred by law;
• equally with other Bondholders and with all unsecured and unsubordinated financial
indebtedness of Synlait; and
• ahead of claims of holders of ordinary shares in Synlait and holders of securities and other
financial products and financial indebtedness that rank after the Bonds
Further important information on the ranking of the Bonds on a liquidation of Synlait can be
found in section 5 of this PDS (Key features of the Bonds)
GuaranteeThe Bonds will be guaranteed by the Guarantors
See section 5.3 of this PDS (Guarantees) for more information on the terms of the Guarantee
Interest Rate The Bonds will pay a fixed rate of interest from the Issue Date to but excluding the Maturity
Date, subject as described under “Interest Deferral” below
The Interest Rate will be set at the sum of the Swap Rate plus the Issue Margin, but in any case
will be no less than the Minimum Interest Rate, and will be announced via the NZX on or about
the Rate Set Date
Issue MarginThe Issue Margin will be determined by Synlait in conjunction with the Joint Lead Managers
following the Bookbuild, and announced via NZX on or about the Rate Set Date
Indicative Issue Margin and
Minimum Interest Rate
The indicative Issue Margin and Minimum Interest Rate will be determined by Synlait in
conjunction with the Joint Lead Managers and announced via the NZX on the Lodgement Date
Interest Payment DatesQuarterly in arrear on 17 March, 17 June, 17 September and 17 December each year (or if that
scheduled day is not a Business Day, the next Business Day), with the First Interest Payment
Date being 17 March 2020, subject as described under “Interest Deferral” below
3. TERMS OF THE OFFER
3.1 TERMS OF THE OFFER
8
Interest payments
and entitlement
Payments of interest on Interest Payment Dates will be of equal quarterly amounts. Any interest on
the Bonds payable on a date which is not an Interest Payment Date, will be calculated based on an
actual/actual day count convention basis as follows:
Amount of your interest payment =
A
x
Interest Rate
x
C
B 4
where:
A = the actual number of days elapsed since the last Interest Payment Date (or, if there has
been no Interest Payment Date, since the Issue Date)
B = the actual number of days in the period from the last Interest Payment Date (or, if there
has been no Interest Payment Date, the Issue Date) to (and including) the next Interest
Payment Date
C = the Principal Amount of Bonds you hold
On Interest Payment Dates interest will be paid to the person registered as the Bondholder as at
the record date immediately preceding the relevant Interest Payment Date
The record date for interest payments is 5.00pm on the date that is 10 calendar days before
the relevant scheduled Interest Payment Date. If the record date falls on a day which is not a
Business Day, the record date will be the immediately preceding Business Day
Interest DeferralThe payment of interest on an Interest Payment Date (other than a date on which the Bonds are
repaid) is subject to no Interest Deferral Condition existing on the relevant Interest Payment Date.
In broad terms, the Interest Deferral Conditions prevent interest from being paid if:
• Synlait is not solvent or would not be solvent after making the payment; or
• an event of default, cancellation of more than $35 million of commitments following event
of review or breach has occurred under an agreement made with or for the benefit of a
Senior Creditor (e.g., a breach of a financial covenant under the Bank Facility Agreement)
or would occur after making the payment
The payment of interest on a date on which the Bonds are Redeemed is not subject to any Interest
Deferral Condition, and all accrued interest (including previously deferred interest) must be paid
if Bonds are Redeemed on any such repayment date regardless of whether an Interest Deferral
Condition exists. However, Redemption as a result of a Tax Event or a Change of Control Event is
not permitted if an Interest Deferral Condition exists or would exist if the Redemption was made.
Any interest that is not paid because an Interest Deferral Condition exists remains outstanding
and will itself earn interest at the Interest Rate
See section 5.5 of this PDS (Interest deferral)
Dividend Stopper Synlait will not be able to pay any dividend or make any other distributions (including any capital
reorganisation or restructure which results in a reduction in the number of Ordinary Shares on
issue (including an acquisition by Synlait of its Ordinary Shares)) on or with respect to its existing
quoted or other securities or indebtedness ranking subordinate to the Bonds, or provide any
financial assistance for the acquisition of certain Synlait Guaranteeing Group securities, if and for
so long as there is any unpaid deferred interest
Early redemption The Bonds will be Redeemed prior to the Maturity Date:
• at Synlait's election if a Tax Event occurs;
• at the option of individual Bondholders if a Change of Control Event occurs;
• at Synlait's election if fewer than 50 million Bonds will be outstanding as a result of
Redemption elections made by Bondholders after a Change of Control Event; or
• at the option of the Supervisor (who must exercise such option if directed by a Special
Resolution of Bondholders) following an Event of Default
However, no Redemption as a result of a Tax Event or a Change of Control Event is permitted if
an Interest Deferral Condition exists or would exist if the Redemption was made
See section 5 of this PDS (Key features of the Bonds)
9
Tax EventIf a Tax Event occurs, Synlait may elect to Redeem all (but not some only) of the Bonds at the
Redemption Amount
However, no Redemption as a result of a Tax Event is permitted if an Interest Deferral Condition
exists or would exist if the Redemption was made
See section 5.8 of this PDS (Tax Event)
Change of Control EventIf a Change of Control Event occurs, then Bondholders have the right to elect that Synlait must
Redeem all of their Bonds at the greater of:
• the Redemption Amount; or
• the volume weighted average price (excluding interest) of the Bonds for the 20 Business
Days preceding the date on which the Change of Control Event occurs plus accrued interest.
Synlait may elect to Redeem all Bonds early if fewer than 50 million Bonds will be outstanding as a
result of Redemption elections made by Bondholders after a Change of Control Event.
However, no Redemption as a result of a Change of Control Event is permitted if an Interest
Deferral Condition exists or would exist if the Redemption was made
See section 5.7 of this PDS (Change of Control Event)
Events of Default If an Event of Default occurs and is continuing the Supervisor may in its discretion, and must
upon being directed to do so by a Special Resolution of Bondholders, declare the Bonds to be
immediately due and payable
The Events of Default are set out in clause 14 of the Master Trust Deed and clause 9 of the
Series Supplement and are summarised in section 5 of this PDS (Key features of the Bonds)
Opening Date 9 December 2019
Closing Date 13 December 2019 at 5.00pm
Minimum application amount$5,000 and multiples of $1,000 thereafter
How to applyApplication instructions are set out in section 11 of this PDS (How to apply)
No underwritingThe Offer is not underwritten
BrokerageSynlait will pay brokerage to market participants in respect of the Offer
You are not required to pay brokerage or any other fees or charges to Synlait to purchase
the Bonds. However, you may have to pay brokerage to the firm from whom you receive an
allocation of Bonds, or for the transfer of the Bonds
Transfer restrictionsSynlait may decline to register a transfer of the Bonds if the transfer would result in the
transferor or the transferee holding or continuing to hold Bonds with a Principal Amount of less
than $5,000 (if not zero) or if the transfer is not in multiples of $1,000
Further payments, fees
or charges
Taxes may be deducted from interest payments on the Bonds. See section 7 of this PDS (Ta x)
QuotationApplication has been made to NZX for permission to quote the Bonds on the NZX Debt Market
and all the requirements of NZX relating to that quotation that can be complied with on or
before the date of distribution of this PDS have been duly complied with. However, the Bonds
have not yet been approved for trading and NZX accepts no responsibility for any statement
in this PDS. NZX is a licensed market operator, and the NZX Debt Market is a licensed market,
under the Financial Markets Conduct Act 2013
NZX Debt Market ticker code SML010 has been reserved for the Bonds
z
10
Selling RestrictionsThe Bonds are being offered only in New Zealand. Synlait has not taken and will not take any
action which would permit a public offering of Bonds, or possession or distribution of any
offering material in respect of the Bonds, in any country or jurisdiction where action for that
purpose is required (other than New Zealand). The Bonds may only be offered for sale or sold in
conformity with all applicable laws and regulations in any jurisdiction in which they are offered,
sold or delivered
Any product disclosure statement, circular, advertisement or other offering material in respect
of the Bonds (including this PDS) may only be published, delivered or distributed in compliance
with all applicable laws and regulations (including those of the country or jurisdiction in which
the material is published, delivered or distributed)
By subscribing for or otherwise acquiring any Bonds, each Bondholder agrees to indemnify,
among others, Synlait, the Supervisor, the Arrangers, the Joint Lead Managers and the
Co-Manager and their respective directors, officers, employees and agents in respect of
any loss, cost, liability or damages suffered as a result of an investor breaching the selling
restrictions referred to in this section
Governing lawNew Zealand
3.2 OTHER DOCUMENTS
The terms of the Bonds, and other key terms of the Offer, are
set out in the Master Trust Deed, as supplemented by the Series
Supplement.
You should read these documents. Copies may be obtained
from the Offer Register at www.companies.govt.nz/disclose
(OFR12776).
4. PURPOSE OF THE OFFER
The net proceeds of the Offer will be advanced to Synlait Milk
Finance Limited and used by it to repay a portion of the amount
drawn under the Bank Facility Agreement as follows:
• the first $120 million of the net proceeds will be applied
to repay ‘Revolving Credit Facility A’ under the Bank
Facility Agreement and pay any associated accrued and
unpaid interest, with all amounts repaid to be available for
redrawing;
• the next $60 million of the net proceeds will be applied to
repay ‘Revolving Credit Facility D’ under the Bank Facility
Agreement and pay any associated accrued and unpaid
interest, with all amounts repaid to be cancelled and
unavailable for redrawing; and
• the remainder of the net proceeds will be applied to repay
any Revolving Credit Facility selected by Synlait, with all
amounts repaid to be available for redrawing.
The Offer will also provide diversification of funding sources to
support Synlait's growth strategy.
The use of proceeds of the Offer will not change, irrespective of
the total amount that is raised.
The Offer is not underwritten.
11
RankingRanking on liquidation of the Issuing GroupType of liability / equityAmount
1
Higher
Ranking
/ Earlier
Priority
Liabilities that rank in priority to the BondsLiabilities preferred by law (e.g., Inland
Revenue)
2
$36.4 million
Bank Facility Agreement borrowings
3
$150.1 million
Other borrowings secured over assets of the
Issuing Group
4
$38.6 million
Lower
Ranking
/ Later
Priority
Liabilities that rank equally with the Bonds
(including the Bonds)
Bonds
5
$200 million
Other unsubordinated liabilities (e.g. trade and
general creditors
6
, among others)
$230.5
million
Liabilities that rank below the Bonds Subordinated liabilitiesNil
Equity
7
Shares, reserves and retained earnings$492.4 million
DIAGRAM SHOWING RANKING OF THE BONDS ON LIQUIDATION OF THE ISSUING GROUP
Notes to diagram:
1. Amounts shown above are indicative based on the financial position of the
Issuing Group as at 31 July 2019, being Synlait’s most recent balance date,
adjusted for the issue of the Bonds. They are subject to rounding adjustments.
2. Liabilities that rank in priority to the Bonds on liquidation include certain
employee entitlements for unpaid salaries and wages, holiday pay and
bonuses and PAYE deductions and amounts owing to Inland Revenue. There
are typically other preferred claims which arise when a company is liquidated
which are not possible to foresee and cannot therefore be quantified.
3. This amount reflects the application of the net proceeds of the Offer to
repay borrowings under the Bank Facility Agreement. For the avoidance
of doubt, this does not include any amounts that will be borrowed to
fund the purchase price payable for the acquisition of all of the shares in
Dairyworks Limited announced on 25 October 2019 (the purchase price
is approximately $112 million). Synlait expects to fund the payment of that
purchase price from borrowings under the Bank Facility Agreement upon
completion of the transaction in FY2020.
4. This amount reflects the mark-to-market value of the Issuing Group’s
commodity, foreign exchange and interest rate derivatives as at 31
July 2019. Such amounts are secured under the security arrangements
applicable to the Bank Facility Agreement.
5. This table assumes $200 million of Bonds are issued under the Offer. If
less than $200 million of Bonds are issued under the Offer, less Bank
Facility Agreement debt would be repaid, and accordingly the liabilities
that rank in priority to the Bonds will be greater than what is shown, and
the amount of the Bonds would decrease.
6. In some circumstances trade and general creditors may have the benefit
of security interests (e.g., a purchase money security interest for goods
provided in the course of business) or a preference at law and, to the
extent of those security interests or that preference, will be entitled to be
paid ahead of Bonds in the event of a liquidation. Although Bonds are
not subordinated to trade and general creditors, in a liquidation scenario
where Senior Creditors do not recover all amounts owing to them under the
security interests held for their benefit, Senior Creditors, the Bonds and trade
and general creditors may rank equally. In that event, trade and general
creditors’ recovery may be greater than the Bonds’ recovery because the
Bonds are subordinated to the Senior Creditors being paid in full.
7. The amount of equity stated in the diagram includes an amount in relation
to Synlait's existing quoted financial products (i.e. Synlait's ordinary shares
which are quoted on the NZX Main Board).
5. KEY FEATURES OF
THE BONDS
A number of key features of the Bonds are described in section
3 of this PDS (Terms of the Offer). The other key features of the
Bonds are described in the following paragraphs of this section 5.
5.1 THE SUPERVISOR
The Supervisor is appointed to act as supervisor and trustee for the
Bondholders on the terms contained in the Trust Deed.
You can only enforce your rights under the Bonds through the
Supervisor (although you can enforce your rights under the Bonds
against Synlait directly if the Supervisor is obliged to enforce, but
has failed to do so).
5.2 RANKING
(a) RANKING ON LIQUIDATION
On a liquidation of the Issuing Group the Bonds will rank as
unsecured obligations of Synlait.
Amounts owing under the Bank Facility Agreement, other secured
borrowed money and other claims preferred by law will rank in a
liquidation in priority to amounts owing under the Bonds and will also
have the benefit of security over or recourse to assets of the Issuing
Group (which the Bonds do not have).
The ranking of the Bonds on a liquidation of the Issuing Group is
summarised in the following diagram.
12
(b) FURTHER BORROWING AND SECURITY
After the issue of the Bonds, Synlait may (without the consent of
Bondholders) borrow money or otherwise incur liabilities from
time to time that:
• rank equally with the Bonds on a liquidation of Synlait.
This may include, for example, further borrowings that are
subordinated to the claims of Senior Creditors such as the
Bank Facility Lenders; or
• rank in priority to the Bonds on a liquidation of Synlait.
This may include, for example, further debt under the Bank
Facility Agreement, other secured borrowed money or
liabilities preferred by law.
The financial covenants and other terms described in the
following sections limit the ability of Synlait to:
• borrow money that ranks equally with, or in priority to,
the Bonds; or
• grant security.
(i) RESTRICTIONS ON BORROWING
The terms of the Bonds do not limit the ability of Synlait to
borrow further money. However, certain terms in the Bank
Facility Agreement do currently limit the ability of Synlait to
borrow (Bondholders do not have the benefit of these, and
they may be amended or waived by the Bank Facility Lenders
at any time). These terms are:
• Senior Debt Leverage ratio: on each balance date,
the ratio of Synlait Guaranteeing Group’s senior debt
(which excludes any debt attributable to the Bonds)
to EBITDA for the Synlait Guaranteeing Group for the
financial year ending on that balance date must not
exceed 3.00:1.00. (As at 31 July 2019: 0.90:1.00)
1
• Total Debt Leverage ratio: on each balance date, the
ratio of Synlait Guaranteeing Group’s total debt (which
includes any debt attributable to the Bonds) to EBITDA
for the Synlait Guaranteeing Group for the financial
year ending on that balance date must not exceed
4.00:1.00. (As at 31 July 2019: 2.19:1.00)
1
• Working capital ratio: at all times the ratio of:
• the value of inventory (excluding consumables
and packaging) and debtors of the Synlait
Guaranteeing Group (excluding an allowance for
doubtful debts and debts past 90 days due); to
• the aggregate of the amount outstanding under
the Seasonal WC Facility under the Bank Facility
Agreement less cash held with a Bank Facility
Lender,
must at all times exceed 1.50:1.00. (As at 31 July 2019:
2.69:1.00)
• Interest Cover Ratio: on each quarterly reporting
date Synlait Guaranteeing Group’s EBITDA to interest
expense (which includes interest equivalents for certain
financial instruments but excludes interest attributable
to the Bonds) must be not less than 3.00:1.00. (As at 31
July 2019: 16.14:1.00)
• Shareholders’ Funds: at all times shareholders’
funds (being total tangible assets less total liabilities
calculated in accordance with NZ GAAP, in each case
for the Synlait Guaranteeing Group and excluding the
effect of any mark to market revaluation of foreign
exchange derivatives) must exceed $295,500,000.
(As at 31 July 2019: approximately $497,800,000)
Although these are not direct restrictions on incurring further
indebtedness, Synlait would not be able to incur additional
indebtedness if the additional debt would result in a breach
of the leverage ratio, the working capital ratio or the minimum
level of shareholders’ funds or if the additional interest
payments would result in a breach of the interest cover ratio.
1. Calculated as if the Offer had been completed as at 31 July 2019 and $200 million of Bonds were issued under the Offer, with net proceeds of $196 million being
received by Synlait, which were advanced to Synlait Milk Finance Limited and used to repay the Bank Facility Agreement as described in section 4 of this PDS
(Purpose of the Offer).
13
(b) FURTHER BORROWING AND SECURITY (continued)
A breach of any of the above financial covenants, including where
breach would occur if accrued and unpaid interest on the Bonds was
paid, would give rise to an Interest Deferral Condition for the Bonds.
This summary of Bank Facility Agreement terms paraphrases the
covenants described, including the defined terms used within
them. The term EBITDA is not an NZ GAAP measure but has a
specific meaning in the Bank Facility Agreement based upon
net profit for the Synlait Guaranteeing Group for the relevant
period calculated in accordance with NZ GAAP but adding back
specified items (including unrealised losses on foreign exchange
or interest rate hedging instruments, operating lease costs and
cash dividends from unconsolidated entities) and excluding
other items (including tax, interest expense, extraordinary items,
losses or gains on sale or revaluation, unrealised gains on foreign
exchange or interest rate hedging instruments, amortisation of
goodwill, depreciation on fixed assets and certain leased items
and option expense).
Synlait has also established a receivables purchase facility
with each of ANZ Bank New Zealand Limited and Bank of
New Zealand. Under those facilities Synlait is able to sell to
a participating bank invoices issued to certain major Synlait
customers and those sales do not constitute debt of Synlait. The
receivables purchase facility provides for a maximum aggregate
face value of invoices subject to the facility at any one time
of approximately $165 million. The amount sold by Synlait to
the participating banks under the facility varies throughout the
year based upon customer orders. The receivables purchase
facility reduces the Synlait Guaranteeing Group’s need to make
drawings under the Bank Facility Agreement for working capital
purposes. However, the facility is uncommitted so at any time
each participating bank may give notice, with immediate effect,
that it will no longer purchase receivables of one or more
debtors. If that were to occur Synlait expects that it would need
to increase the size of the Bank Facility Agreement or put in
place other funding arrangements to provide further funding for
working capital purposes. Any additional borrowings under the
Bank Facility Agreement will rank in priority to the Bonds in a
liquidation of Synlait and would be secured against Synlait assets.
(ii) RESTRICTIONS ON GRANTING SECURITY
The Facility Agreement contains terms that limit the ability of
Synlait to grant security (although these are not terms of the
Bonds so Bondholders do not have the benefit of these, and they
may be amended or waived by the Synlait Guaranteeing Group's
banking syndicate). These are undertakings from the Synlait
Guaranteeing Group that it will not grant or allow security over its
assets, except in certain permitted instances, including security
which the Synlait Guaranteeing Group's banks agree to.
5.3 GUARANTEES
The Bonds will be guaranteed by the Guarantors under the
Trust Deed.
Under the Trust Deed, each Guarantor will jointly and severally
guarantee to the Supervisor the payment of all amounts owed to
Bondholders in respect of the Bonds.
There are no limits on the amount for which any Guarantor may
be liable under the Guarantee and there are no conditions to the
Guarantee. The obligations of the Guarantors under the Trust
Deed will be unsecured and subordinated to the extent that, in a
liquidation of the Issuing Group, Senior Creditors will be entitled
to be paid in priority to Bondholders receiving payment under the
Guarantee. Any demand made under the Guarantee is likely to
constitute an event of default under the Bank Facility Agreement
(entitling the Bank Facility Lenders to exercise their rights under
security interests that secure that facility) and result in the amounts
outstanding under the Bank Facility Agreement being paid in full
ahead of any payment being made under the Guarantee to the
extent that amounts due under the Bank Facility Agreement are
able to be recovered from the assets subject to those security
interests.
As at the Issue Date the Guarantors will be Synlait Milk Finance
Limited, The New Zealand Dairy Company Limited, Eighty Nine
Richard Pearse Drive Limited and Synlait Foods (Talbot Forest)
Limited, each of which is a member of the Issuing Group. The only
other member of the Issuing Group is Synlait Business Consulting
(Shanghai) Limited and it will not be a Guarantor on the Issue
Date. Any other subsidiary of Synlait that becomes, or is required
to become, a guarantor under the Bank Facility Agreement before
the Maturity Date is also required to become a Guarantor. A
Guarantor may be released if it has ceased to be and is no longer
required to be a guarantor under the Bank Facility Agreement
and no Event of Default has occurred or is continuing without
waiver. Under the Bank Facility Agreement, any new subsidiary
of the Synlait Guaranteeing Group, other than a subsidiary which
is a permitted joint venture contemplated by the Bank Facility
Agreement, must become a guarantor under the Bank Facility
Agreement (and therefore will become a Guarantor of the Bonds).
This summary does not cover all details of the Guarantee. For full
details of the Guarantee see clauses 10 and 11 of the Master
Trust Deed.
5.4 EVENTS OF DEFAULT
The Events of Default are contained in the Trust Deed. They include:
• a failure by Synlait to make a payment, including of principal
or interest (to the extent payment of interest has not been
deferred as described in section 5.5 below) due in respect
of the Bonds, including on Redemption, when due, and that
breach is not fully remedied within 10 Business Days
• a failure by Synlait to comply with the restriction on dividends,
distributions, capital reductions and the provision of financial
assistance where interest has been deferred
• failure by Synlait or any Guarantor to comply in a material
respect with any obligation under the Trust Deed which is not
remedied and which has or is likely to have a material adverse
effect on the Synlait Guaranteeing Group’s ability to repay the
Bonds in accordance with the Trust Deed
14
5.4 EVENTS OF DEFAULT (Continued)
• any representation or statement made or deemed made by
Synlait or any Guarantor in the Trust Deed is or proves to have
been incorrect or misleading in any material respect when
made where the circumstances rendering the representation
or statement incorrect are not remedied and such
circumstances have or are likely to have a material adverse
effect on the Synlait Guaranteeing Group’s ability to repay the
Bonds in accordance with the Trust Deed
• Indebtedness in respect of borrowed money of more than
$35 million is not paid when due, or is called up as a result
of an event of default or event of review or a commitment
for such indebtedness is cancelled as a result of an event of
default or event of review
• insolvency events that affect Synlait or a Guarantor.
This summary does not cover all of the Events of Default. For full
details of the Events of Default see clause 14 of the Master Trust
Deed and clause 9 of the Series Supplement.
If an Event of Default occurs and is continuing, the Supervisor
may in its discretion, and must upon being directed to do so by a
Special Resolution of Bondholders, declare the Principal Amount
and any accrued interest on the Bonds due and payable. If this
occurs, Synlait will need to repay Bondholders the Principal
Amount of the Bonds and any outstanding interest due on the
Bonds. If the repayment date is not an Interest Payment Date,
outstanding interest will be calculated based on an actual/actual
day count convention basis as follows:
Amount of your interest payment =
A
x
Interest Rate
x
C
B 4
where:
A = the actual number of days elapsed since the last
Interest Payment Date (or, if there has been no Interest
Payment Date, since the Issue Date)
B = the actual number of days in the period from the last
Interest Payment Date (or, if there has been no Interest
Payment Date, the Issue Date) to (and including) the next
Interest Payment Date
C = the Principal Amount of Bonds you hold
Any Event of Default is likely to constitute an event of default
under the Bank Facility Agreement (entitling the Bank Facility
Lenders to exercise their rights under security interests that
secure that facility) and result in the amounts outstanding under
the Bank Facility Agreement being paid in full ahead of any
payment being made in respect of the Bonds.
5.5 INTEREST DEFERRAL
The payment of interest on the Bonds on an Interest Payment
Date (other than a date on which the Bonds are Redeemed) is
subject to no Interest Deferral Condition existing on the relevant
Interest Payment Date. An Interest Deferral Condition exists on an
Interest Payment Date if:
• Synlait would not satisfy the solvency test (as defined in
section 4 of the Companies Act 1993) immediately after
making the payment; or
• in an agreement made with or for the benefit of a Senior
Creditor:
• Synlait has breached a covenant or undertaking and
the breach has not been waived or remedied to the
satisfaction of the Senior Creditor;
• an event of default (however described) has occurred
and has not been waived or remedied to the satisfaction
of a Senior Creditor or a cancellation notice has been
issued by a Senior Creditor in respect of more than $35
million of commitments as a result of an event of review
(in each case, however described); or
• a breach of covenant or undertaking or event of default
would occur if accrued but unpaid interest on the
Bonds was paid on the Interest Payment Date
Examples of covenants or undertakings that the Synlait
Guaranteeing Group has provided to a Senior Creditor are set
out in section 5.2(b)(i) of this PDS (Restrictions on borrowing).
Examples of events of review are those provided for in the Bank
Facility Agreement. These are quite specific to Synlait’s business
and include minimum levels of milk solids to be received, a
change of control of any member of the Synlait Guaranteeing
Group, delisting of Synlait from NZX, breach by the Synlait
Guaranteeing Group of requirements in relation to its milk
supply contracts (including minimum contracted milk volumes,
not permitting any security interests over milk supplied to it and
ensuring at least 80% of contracted milk supply is for a period
of not less than two years), change in Synlait’s constitution,
Synlait’s agreement with The a2 Milk Company being terminated
or not renewed and material delay in certain capital expenditure
projects. If any of these were to occur and not be resolved with
the Bank Facility Lenders during a 30 day review period, the Bank
Facility Lenders may cancel any facility and require repayment. If
the Synlait Guaranteeing Group fails to repay any cancelled facility
the security interests securing the Bank Facility Agreement will
be able to be enforced. Cancellation of more than $35 million of
commitments following an event of review under the Bank Facility
Agreement that results in an Interest Deferral Condition will also
result in an Event of Default occurring under the Bonds.
The payment of interest on the Maturity Date (or an earlier
Redemption date if the Bonds are Redeemed prior to the Maturity
Date) is not subject to any Interest Deferral Condition, and all
accrued interest (including previously deferred interest) must
be paid if Bonds are Redeemed on any such repayment date
regardless of whether an Interest Deferral Condition exists.
However, Redemption as a result of a Tax Event or a Change
of Control Event is not permitted, and interest and previously
deferred interest will not be paid, if an Interest Deferral Condition
exists or would exist if the Redemption was made.
Any interest that is not paid because an Interest Deferral
Condition exists remains outstanding and will itself earn interest
at the Interest Rate.
For the avoidance of doubt, no Event of Default arises if interest
on the Bonds is not paid because an Interest Deferral Condition
exists on an Interest Payment Date (other than the Maturity Date
or earlier Redemption date (if applicable)). See section 5.4 of this
PDS (Events of Default) for a description of the Events of Default.
15
5.6 DIVIDEND STOPPER
Synlait will not be able to pay any dividend or make any other
distributions (including any capital reorganisation or restructure
which results in a reduction in the number of Ordinary Shares on
issue (including an acquisition by Synlait of its Ordinary Shares))
on or with respect to its existing quoted or other securities or
indebtedness ranking subordinate to the Bonds, or provide
any financial assistance for the acquisition of certain Synlait
Guaranteeing Group securities, if and for so long as there is any
unpaid deferred interest.
5.7 CHANGE OF CONTROL EVENT
Bondholders may choose to Redeem their Bonds before the
Maturity Date if a Change of Control Event occurs, after Synlait
provides notice of the Change of Control Event as described
below. A Change of Control Event will occur if:
• an offer is made to acquire all or some of Synlait’s securities
which would result in the offeror (including its associates)
holding or controlling more than 50% of the voting rights in
Synlait, and the offer has been accepted by the requisite
number of holders of voting rights in Synlait, become
unconditional and all regulatory approvals in respect of the
offer have been obtained; and/or
• any circumstance or event arises which results in a person
(together with its associates) holding or controlling more
than 50% of the voting rights in Synlait.
Bondholders will be provided with notice of the Change of
Control Event and will have a period of no less than 10 Business
Days from the date of the notice to make an election. If a
Bondholder elects to Redeem their Bonds, Synlait must Redeem
the relevant Bonds on the date specified in the notice (which
must not be more than 30 Business Days after the date of the
notice (or if later, 30 Business Days after the date on which all
notices and announcements (as applicable) are completed)) for
the greater of:
• the Redemption Amount; and
• the arithmetic average of the daily volume weighted
average price of the Bonds (excluding interest) on NZX
Debt Market on each Business Day during the period of
20 consecutive Business Days immediately preceding (but
not including) the date of the Change of Control Event,
plus accrued interest or if, in the opinion of the Board,
any exceptional or unusual circumstances have artificially
affected that volume weighted average price and an
independent adviser accepts an engagement to determine
the market value of the Bonds, or if no sales occurred during
that period, the price shall be the market value of the Bonds
as determined by an independent adviser.
Synlait may elect to Redeem all Bonds if fewer than 50 million
Bonds will be outstanding as a result of Redemption elections
made by Bondholders. In that case Bonds would be redeemed
on the same date and for the same amount as Bonds that are
Redeemed as a result of Bondholder election.
However, no Redemption as a result of a Change of Control
Event, whether at Bondholder or Synlait election, is permitted
if an Interest Deferral Condition exists or would exist if the
Redemption was made.
It is possible that a change of control of Synlait could result
in both a Change of Control Event and an Interest Deferral
Condition (if more than $35 million of commitments were
cancelled as a result of an event of review following the change
of control). If that were to occur, Synlait would be restricted
from Redeeming the Bonds as a result of the Change of Control
Event. However, the cancellation of more than $35 million
of commitments would result in an Event of Default under
the Bonds. The Supervisor could then in its discretion (and
must upon being directed to do so by a Special Resolution of
Bondholders) declare the Principal Amount and any accrued
interest on the Bonds due and payable. If this were to occur,
Synlait would need to repay Bondholders the Principal Amount of
the Bonds and any outstanding interest due on the Bonds. The
amount that Bondholders would receive might be different from
the amount they would have received as a result of the Change
of Control Event as described above. Any Event of Default is also
likely to constitute an event of default under the Bank Facility
Agreement (entitling the Bank Facility Lenders to exercise their
rights under security interests that secure that facility) and result
in the amounts outstanding under the Bank Facility Agreement
being paid in full ahead of any payment being made in respect of
the Bonds.
If a Change of Control Event occurs but Synlait fails to give a
Change of Control Event Notice, the Supervisor may initiate
proceedings against Synlait to obtain an order for specific
performance of that notice.
For full details of the definition of and requirements for a Change
of Control Event, see clause 6 of the Series Supplement.
5.8 TAX EVENT
Synlait may choose to Redeem all (but not some only) of the
Bonds for the Redemption Amount if a Tax Event occurs. In
summary, a Tax Event will occur if there has been, or there will be,
a change in New Zealand law applying after the Issue Date, as a
result of which:
• any interest payable on the Bonds, including any interest
that has been deferred, is not, or will not be, fully deductible
for the purposes of New Zealand income tax; or
• Synlait would be, or is likely to be, exposed to any other
adverse tax consequences in relation to the Bonds.
If Synlait chooses to Redeem the Bonds in these circumstances, it
will announce the Redemption via NZX together with the date set
for Redemption (which must be at least 30 calendar days and not
more than 60 calendar days after such announcement). Before
making an election to Redeem the Bonds, Synlait must provide to
the Supervisor a certificate signed by two Directors stating that
a Tax Event has occurred (including a description thereof and
any reasonable supporting information or opinions requested by
the Supervisor) and is continuing as at the date of the certificate.
However, no such Redemption is permitted if an Interest Deferral
Condition exists or would exist if the Redemption was made.
For full details of the definition of and requirements for Tax
Events, see clause 6 of the Series Supplement.
16
5.9 OTHER RELEVANT INFORMATION ABOUT THE
TRUST DEED
The Trust Deed also contains a number of standard terms,
including relating to:
• The role of the Supervisor, and the powers and duties of
the Supervisor. The Supervisor will not be responsible for
monitoring the application by Synlait of the money paid by
the subscribers of the Bonds.
• The process for replacement of the Supervisor.
• The right of the Supervisor to be indemnified.
• The payment of fees, expenses and other amounts owing
to the Supervisor (including that amounts owing to the
Supervisor are, on a default, paid from the proceeds of
enforcement before payments to Bondholders).
• Holding meetings of Bondholders.
• Providing notices to Bondholders (which may be by way of
NZX announcement).
• The process for Bondholders to sell or transfer their Bonds
(including that such sales and transfers are subject to the
terms of the Trust Deed and applicable laws, in particular that
transfers that would result in the transferee holding Bonds
with a total Principal Amount of less than $5,000, or in an
amount that is not a multiple of $1,000, will not be allowed).
• The process for amending the Trust Deed. To summarise,
the Trust Deed can be amended:
• with the consent of the Supervisor; or
• by the Financial Markets Authority under section 109 of
the Financial Markets Conduct Act 2013; or
• under section 22(7) or 37(6) of the Financial Markets
Supervisors Act 2011 or any other enactment.
The Supervisor must only consent to an amendment if:
• the amendment is approved by a Special Resolution of
the Bondholders (or each class of Bondholders that is
or may be adversely affected by the amendment); or
• the Supervisor is satisfied that the amendment does
not have a material adverse effect on the Bondholders.
You should read the Trust Deed for further information.
6. RISKS OF INVESTING
6.1 INTRODUCTION
This section describes the following potential key risk factors:
• general risks associated with an investment in the Bonds;
and
• specific risks relating to Synlait's creditworthiness.
The selection of risks has been based on an assessment of
a combination of the probability of a risk occurring and the
impact of the risk if it did occur. This assessment is based on the
knowledge of the Directors as at the date of this PDS. There is no
guarantee or assurance that the importance of different risks will
not change or that no other risks may emerge over time.
Where practicable, Synlait will seek to implement risk mitigation
strategies to minimise the exposure to some of the risks outlined
in the following table, although there can be no assurance that
such arrangements will fully protect Synlait from such risks.
You should carefully consider these risks (together with the other
information in this PDS and available on the Offer Register) before
deciding to invest in the Bonds. This summary does not cover all
of the risks of investing in the Bonds.
The statement of risks in this section does not take account of
the personal circumstances, financial position or investment
requirements of any particular person. It is important, therefore,
that before making any investment decision, you give
consideration to the suitability of an investment in the Bonds in
light of your individual risk profile for investments, investment
objectives and personal circumstances (including financial and
taxation issues).
GENERAL RISKS: an investment in the Bonds is subject to the following general risks
Credit Risk on SynlaitIf Synlait becomes insolvent, there may be a shortfall of funds to pay all amounts ranking ahead
of and equally with the Bonds. If this occurs, you will not receive a full return (and may not
receive any return) of the Principal Amount and/or any interest due and unpaid at that time.
See section 5.2 of this PDS (Ranking) for more information on the ranking of the Bonds in the
event of a liquidation of the Issuing Group.
6.2 RISKS
17
Secondary Market RiskThe risk that, if you wish to sell your Bonds before maturity:
• you may be unable to find a buyer; or
• the price at which you are able to sell them is less than the amount you paid for them.
These outcomes may arise because of factors related to Synlait's creditworthiness, or because of
other factors. These other factors may include the following:
• The fact that a trading market for the Bonds never develops, or if it develops is not very
liquid. Although permission is expected to be granted to quote the Bonds on the NZX Debt
Market, this does not guarantee any trading market in the Bonds.
• The level, direction and volatility of market interest rates. For example, if market interest rates
go up, the market value of the Bonds would typically be expected to go down and vice versa.
• The fact that Bondholders seeking to sell relatively small or relatively large amounts of Bonds
may not be able to do so at prices comparable to those available to other Bondholders.
SPECIFIC RISKS RELATING TO SYNLAIT'S CREDITWORTHINESS: Synlait considers that the main circumstances which
significantly increase, either individually or in combination, the risk that Synlait may default on its payment obligations under the
Bonds are as follows.
Customer Concentration RiskSynlait’s current business, while having a range of products, customers and geographic
destinations, derives a large portion of earnings from one product category, one market and
one customer, that being infant formula supplied to The a2 Milk Company Limited (The a2 Milk
Company) which is predominantly consumed in the Chinese market.
The a2 Milk Company is Synlait's most significant customer and contributor to financial
performance. Synlait's three largest customers (including The a2 Milk Company) represented
approximately 66% of total revenue in FY2019. However, other than The a2 Milk Company, no
one customer has represented more than 17% of Synlait’s consolidated revenue in any one year
in the past three financial years.
The supply contract to which Synlait and The a2 Milk Company are party to provides for
exclusive supply of certain infant nutrition products by Synlait for The a2 Milk Company’s
Australian, New Zealand and Chinese market requirements up to a specified quantity in each
year. However, that contract does not require The a2 Milk Company to purchase a minimum
quantity of product from Synlait (so long as the relevant exclusivity arrangements are observed).
Synlait has recently entered into an amendment agreement to that supply contract which
provides for (among other things) Synlait to be the exclusive provider of an increased volume of
the relevant infant formula products compared to the current contract. The term of the supply
contract has been extended by two years, effectively providing a minimum term to 31 July 2025.
If The a2 Milk Company reduces its order quantities under the supply contract, or an event occurs
which adversely affects The a2 Milk Company, including its ability to meet its obligations under that
contract, it could have an adverse effect on Synlait's operations and financial performance (including
Synlait's ability to make payments on the Bonds). Investors should review and monitor information
publicly released by The a2 Milk Company as part of consideration of an investment in Bonds.
Synlait seeks to manage the risk of its exposure to The a2 Milk Company and its other key customers by:
• maintaining its close relationship and alignment of interests (it is also relevant to note that The
a2 Milk Company held approximately 17.4% of Synlait Ordinary Shares as at 31 July 2019);
• continuing to execute its strategy to diversify its product categories, customers and the
geographic destinations into which it delivers its products. Recent evidence of this includes
investment in the "Everyday Dairy" category through:
• construction and commissioning of an advanced dairy liquids facility, underpinned by a
ten-year supply contract with Foodstuffs South Island;
• the acquisition of Talbot Forest Cheese (completed in August 2019); and
• the acquisition of Dairyworks Limited
2
(announced on 25 October 2019), one of New
Zealand's largest companies in the "Everyday Dairy" category.
See also "China Market Access Risk" and "Category Concentration Risk".
2. The acquisition is expected to settle in 2020 subject to receipt of Overseas Investment Office approval.
18
China Market
Access Risk
Synlait's manufacturing operations are based solely in New Zealand. Whilst only approximately
9% of sales revenue in FY2019 was derived from products exported directly to China, Synlait
understands that a significant proportion of both its infant nutritional and ingredient sales are
ultimately consumed in China.
Synlait is therefore reliant on market access for its products sent into China. Disruption of access
to this key market for any reason, including:
• geopolitical tensions;
• changing food safety regulations;
• a focus in China on enhancing domestic production (an example of which is the Chinese
National Development and Reform Commission policy released in June 2019 proposing to
increase domestic infant formula production to meet rising demand);
• changes in export or brand regulations; or
• limitations on foreign entities doing business in China,
could have a significant adverse effect on Synlait's financial performance (including Synlait's ability
to make payments on the Bonds).
Synlait has the registrations it requires for the products it currently exports to China. These
registrations require periodic renewal and Synlait has a process in place to monitor and plan
for renewals. Synlait is assisting key customers with brand registration in China, which includes
assessment of Synlait’s facilities, the product recipes and a need for registration of Synlait
manufacturing sites. The Dunsandel facility is registered with New Zealand and Chinese
authorities for infant formula production, the Auckland blending and canning facility is currently
seeking registration for infant formula production with Chinese authorities, and Synlait intends
to seek infant formula registration with New Zealand and Chinese authorities for its Pokeno
facility when the facility is commissioned to manufacture infant formula products. The registration
process with Chinese authorities can be time consuming and Synlait has no direct ability to control
the timing and process for these proposed registrations. An event that resulted in the removal of,
or inability to renew, the Dunsandel facility's registration (with renewal required in 2022) would
result in a material impact to Synlait's ability to meet its obligations under the Bonds.
There is no current proposal that Synlait is aware of that would result in changing New Zealand
regulations which would affect the export of Synlait's products to China. However, there is no
guarantee that such change will not occur in the future or that the export of Synlait's products to
China will remain possible.
Synlait manages this market access risk in multiple ways, including:
• proactive monitoring of the regulatory environment for trends, changes and areas of risk,
including through maintaining strong relationships with government agencies, regulatory and
industry networks;
• regularly discussing market and regulatory dynamics with Bright Dairy, our 39% China based
major shareholder, and its three China based Directors;
• continuing to diversify its customer, product and market offerings to mitigate the impact of
any single market or product category disruption; and
• ensuring operational level controls are in place, verified and continuously improved to
maintain all current site registrations.
If Synlait's products were no longer able to be sent into China, either directly or indirectly (e.g.,
via Synlait customers or through Daigou channels), this could have a significant adverse effect
on Synlait's financial performance.
See also "Customer Concentration Risk" and "Category Concentration Risk".
19
Category Concentration RiskThe infant nutrition category, and specifically consumer-packaged infant formula products, are
the greatest contributor to Synlait's overall profitability. Sales of consumer-packaged infant
formula products represented over 40% of Synlait's revenue in FY2019. Synlait also produces a
range of specialised and infant-grade ingredients which are used in infant formula production,
either by Synlait or its customers. Synlait's financial performance is therefore directly linked
to the demand for, and Synlait's ability to supply, infant formula products and ingredients. A
material and continuing drop in demand for any reason, including:
• changes in ultimate consumer preferences (e.g., to plant based products or an increase in
breast-feeding rates);
• changes in regulation (e.g. the World Health Organisation code or Codex Alimentarius
Food Standards); and
• changes in other factors affecting birth rates in Synlait's major markets,
could have a significant adverse effect on Synlait's financial performance (including Synlait's
ability to make payments on the Bonds).
The circumstances noted above are outside of Synlait's control, but are possibilities that could
occur during the term of the Bonds.
Synlait manages this risk through:
• its strategy to diversify product categories;
• a well resourced and capable in-house regulatory and Government affairs team and
membership and representation within key industry groups such as the Infant Nutrition
Council (ANZ) and China Nutritional Health Food Association (CNHFA); and
• in-house innovation and technical capability which allows Synlait to be responsive to
changes in the dynamic markets it operates in, including infant formula. The team of
approximately 50 staff focusses on new product development, new technology and
process development, sales support and operations support.
See also "Customer Concentration Risk" and "China Market Access Risk".
Implementation Of
Diversification And
Growth Strategy
One of the ways Synlait addresses the concentration risks set out above is to seek to diversify
product categories, customers and the geographies into which it delivers its products. Synlait
has eight strategic pathways, five of which are aimed at growth. The growth strategies are
designed to capture value, optimise milk supply and diversify the business.
Synlait is nearing completion of a capital investment cycle which has seen it commit
approximately $470 million on growth projects including the expansion of Synlait's lactoferrin
facility ($18.9 million), construction of the infant-capable manufacturing facility at Pokeno
($280 million, including the value of the land acquired), the liquid dairy packaging facility at
Dunsandel ($134 million) and the acquisition of Talbot Forest Cheese ($37.8 million). Although
the construction or acquisition phase of these projects is largely complete, Synlait is still
integrating these into its wider business. Synlait has also recently announced the acquisition of
all of the shares in Dairyworks Limited for approximately $112 million (which is subject to receipt
of Overseas Investment Office Approval). Synlait expects to have other capital expenditure
projects that it is committed to from time to time which are at various stages of implementation.
Whilst these projects will help address the concentration and operational risks faced by the business,
there are risks associated with this growth and its implementation, including the potential inability to
maintain product quality and controls, execution risk and cost control (including funding costs).
In particular, there is a risk that Synlait is not able to drive profitability from major capital
investments (either as quickly as forecast or at all). This could have a significant impact on
Synlait's financial performance (including Synlait's ability to meet its obligations under the Bonds).
Synlait has customer contracts, governance structures, processes, and capability to manage this
risk, including:
• ensuring wherever possible that large capital expenditure projects are supported by new
or refreshed customer commitments;
• a dedicated Project Management Office function to drive consistency and build capability
across the project lifecycle, including thorough business case development;
• active monitoring of all projects through an executive-level governance group; and
• an experienced Board which maintains oversight of the origination and execution of
new projects.
20
Product Safety RiskSynlait's core business is the manufacture and sale of dairy products. There is a risk that
Synlait's products could become, or be perceived to become, unsafe for consumption due to
contamination. This could cause consumers of Synlait's products to become unwell, result in a
product recall or result in adverse publicity about Synlait's products or its customers’ products.
Any food safety incident could have a significant, and long-term, adverse impact on Synlait's
reputation as a manufacturer and supplier of dairy products. Such an event could also impact
adversely on Synlait's existing licences and registrations. If Synlait or any of its customer's reputations
are adversely impacted, or Synlait loses any of its licences or registrations, its financial performance
could be adversely impacted (including Synlait's ability to make payments on the Bonds).
Synlait considers the likelihood of a food safety incident to be low. Synlait is not aware of any
defect affecting the safety of any product it has sold and Synlait maintains a strict testing regime
that exceeds all legal requirements in New Zealand and its export markets. However, Synlait
cannot guarantee that a material food safety event will not occur in the future.
Synlait manages this risk through its comprehensive food safety and quality management
system, which includes:
• strict operational controls throughout Synlait’s value chain;
• operation of a dedicated chemistry laboratory, a microbiology laboratory, and in-process
laboratories inside each dryer and in the liquid dairy facility which are ISO 17025 certified
and AINZ accredited. These labs undertake thorough testing programmes, including raw
milk, ingredients, finished product and across Synlait’s processing environment;
• training for all staff commensurate to their position;
• regular internal and external audits to verify controls and drive a focus on continuous
improvement.
The Synlait Food Safety Management system is regularly audited by New Zealand’s Ministry for
Primary Industries, main customers and various independent auditing and certification bodies.
Synlait holds a valid FSSC22000 and China Dairy HACCP certification, these are internationally
recognised Food Safety certificates.
Synlait also holds some product recall insurance and seeks to limit its liability to its customers
for any product quality or product safety event wherever possible.
Site And Plant
Concentration Risk
All of Synlait's infant formula base powder and ingredient products were produced at the Dunsandel
facility in FY2019. Dunsandel has total capacity for approximately 85,000 tonnes of infant formula
base powders, 70,000 tonnes of ingredient products (whole milk powder, skim milk powder and
anhydrous milk fat), 34 tonnes of lactoferrin, and 110 million litres of liquid dairy products.
Any event that resulted in significant damage or destruction to the Dunsandel facility, which
meant that facility was unable to operate, could have an adverse impact on Synlait's operational
and financial position (including Synlait's ability to make payments on the Bonds). Synlait's key
customers may also decide to terminate or reduce their relationships with Synlait in the event of a
long-term disruption, which could further affect Synlait's financial performance.
Such events could include:
• catastrophic equipment or infrastructure failure, including infrastructure outside Synlait’s
control such as the roading network Synlait uses for collection of milk;
• failure of information technology or operating technology systems that control Synlait’s
processing facilities (including by reason of an unauthorised event or malicious
cyber attack);
• unforeseen breakdowns;
• interruption of electricity or coal supply;
• industrial action; or
• fire, earthquake or other natural disasters.
Synlait employs multiple operational risk strategies to manage this risk including:
• maintenance strategies and processes, including investment in an enterprise asset
management system, preventative maintenance programmes, critical spare provisions and
operator-led defect monitoring;
• fire, gas and chemical detection and response systems; and
21
Site And Plant
Concentration Risk
(Continued)
• business continuity and disaster recovery plans and to help mitigate the impact of
disruptive events, with a focus on effective restoration of key processes and systems.
In addition, Synlait holds material damage and business interruption insurance across all sites to
mitigate this risk. Insurance coverage does not provide complete protection against all potential
hazards incidental to Synlait due to uninsurable risks (for example, political risk and regulatory
risk), policy exclusions, excesses and other limitations. Synlait may also decide not to insure
certain assets, or against certain risks.
While not able to provide full contingency, particularly related to infant formula production,
the recent commissioning of the Pokeno facility (current capacity of 45,000 tonnes of infant
formula), and acquisitions of Talbot Forest Cheese and Dairyworks Limited
3
provide further
mitigation for the impact of a significant event at the Dunsandel facility. The land on which the
facility at Pokeno is located also subject to litigation. In November 2018, the High Court removed
covenants over the land which would have hindered development of the land. Subsequent
to commencement of construction of the Pokeno facility, the Court of Appeal overturned the
High Court decision. Synlait has been granted leave to appeal to the Supreme Court (hearing
scheduled for April 2020). Synlait has received legal advice regarding the most likely outcomes
of this dispute. Taking into account that advice, Synlait considers it unlikely that an adverse
decision at the Supreme Court or subsequent proceedings would result in a materially negative
impact on Synlait's ability to continue to operate in the same manner at the Pokeno site.
Lactoferrin Pricing RiskThe price per tonne for lactoferrin (a high value, speciality ingredient product produced by
Synlait) has increased materially over the past three financial years, and is subject to volatile
price movements.
Synlait's gross profit per metric tonne for lactoferrin in FY2019 was $646,099, up from $285,757
in FY2018. Lactoferrin sales contributed $13.3 million to Synlait's gross profit in FY2019, up from
$4.4 million in FY2018.
Whilst the favourable pricing environment experienced in FY2019 has continued into early
FY2020, Synlait does not expect pricing will be sustained at the current elevated levels as
additional supply is expected to enter the market.
Any material and sustained decrease in the sale price for lactoferrin could have a significant
adverse financial impact on Synlait's financial performance.
Synlait has fixed price contracts for approximately half of its lactoferrin supply. However, Synlait
has no ability to influence changes in lactoferrin pricing or supply of lactoferrin to the market
and therefore is unable to predict the timing, duration and scale of any future movement in
lactoferrin pricing, and its impact on Synlait.
Milk Supply RiskSynlait is primarily involved in the manufacture and sale of dairy products, which are
predominantly produced from cow's milk. Synlait's milk supply comes from approximately 250
farmers located in the Canterbury and Waikato regions of New Zealand, the majority being
located in Canterbury. The majority of Synlait’s milk supply contracts provide for a notice period
for termination by the farmer supplier of at least 24 months.
Synlait must continue to pay a competitive base milk price and premiums for differentiated milk
supply over time in order to attract and retain farmer suppliers. As at the date of this PDS Synlait
has a waiting list of farmers who wish to supply their milk to Synlait. However, that may change
in the future as farmer suppliers may be solicited by other milk processors who are able to offer
an overall more attractive supply arrangement than Synlait. Any constraint in milk supply could
have an impact on Synlait's financial performance (including Synlait's ability to make payments
on the Bonds).
Any event that affected dairy herds in New Zealand, or specifically affected dairy herds in the
Canterbury and/or Waikato regions of New Zealand, could significantly impact Synlait's financial
performance (including Synlait's ability to make payments on the Bonds). Such events could
include disease (e.g., foot and mouth disease), contaminated stock feed or deliberate acts of
bioterrorism. In these circumstances, Synlait could be affected more adversely than other dairy
processors due to the specific geographic locations of Synlait's farmer suppliers.
Synlait considers the likelihood of an event which would adversely affect New Zealand dairy
herds to be low. New Zealand is isolated from other countries and has strict biosecurity
regulations and processes in place. New Zealand has never had an outbreak of foot and mouth
disease and is officially recognised as being free of that disease. Synlait maintains quality
controls to identify and quarantine any contaminated products.
3. Expected to settle in 2020 subject to receipt of Overseas Investment Office approval.
22
NameRole
IssuerSynlait Milk LimitedIssuer of the Bonds
SupervisorThe New Zealand Guardian
Trust Company Limited
Holds certain covenants on trust for the benefit of the
Bondholders, including the right to enforce Synlait's obligations
under the Bonds
ArrangersANZ Bank New Zealand
Limited and Jarden Securities
Limited
Provides advice and assistance to Synlait in arranging the
Offer, and assists with quotation of the Bonds
Joint Lead Managers ANZ New Zealand Limited,
Jarden Securities Limited,
Deutsche Craigs Limited and
Forsyth Barr Limited
Assists with the Bookbuild and with the marketing and
distribution of the Offer. Except as described above, the
Arrangers and Joint Lead Managers are not otherwise involved
in the Offer
None of the Arrangers, the Joint Lead Managers and their
respective directors, employees, agents and advisers have
independently verified the content of this PDS
This PDS does not constitute a recommendation by the
Arrangers, any Joint Lead Manager, or any of their respective
directors, officers, employees, agents or advisers to purchase
any Bonds
Co-ManagerHobson Wealth Partners
Limited
Assists with the marketing and distribution of the Offer
Securities Registrar Computershare Investor
Services Limited
Maintains the Bond Register
Solicitors to Synlait Bell GullyProvides legal advice to Synlait in respect of the Offer
Solicitors to Supervisor Chapman TrippProvides legal advice to the Supervisor in respect of the Offer
8. WHO IS INVOLVED?
7. TAX
RESIDENT WITHHOLDING TAX
If you are tax resident in New Zealand or otherwise receive
payments of interest on the Bonds that are subject to the resident
withholding tax rules, resident withholding tax will be deducted
from interest paid or credited to you at the relevant rate, unless
you produce to the Securities Registrar evidence you are exempt
from resident withholding tax on or before the record date for the
relevant payment date.
APPROVED ISSUER LEVY
If interest on your Bonds is subject to the non-resident
withholding tax rules, Synlait will pay approved issuer levy (AIL)
on interest paid to you and deduct the AIL from the interest
payment. Synlait may apply the zero-percent rate of AIL (rather
than the standard AIL rate of 2%) where it is able to do so.
INDEMNITY
If, in respect of any of your Bonds, the Securities Registrar or
Synlait becomes liable to account for withholding taxes, or make
any payment of, or on account of, tax payable by you, then the
Securities Registrar and Synlait shall be indemnified by you in
respect of such liability.
GENERAL
There may be other tax consequences from acquiring or
disposing of the Bonds including income tax consequences. If
you have any queries relating to the tax consequences of the
investment, you should obtain professional advice on those
consequences in light of your specific circumstances.
Taxes may affect your returns. The preceding information does
not constitute taxation advice to any Bondholder, is general in
nature and limited to consideration of New Zealand taxation
impacts as at the date of this PDS.
23
9. HOW TO COMPLAIN
Complaints about the Bonds can be directed to:
Synlait Milk Limited at
1028 Heslerton Road,
RD13,
Rakaia 7783
Phone: +64 3 373 3000
Attention: Chief Financial Officer
If for any reason Synlait is unable to resolve your complaint,
please contact:
The Supervisor at
Level 14, 191 Queen Street
Auckland 1010
Phone: +64 9 909 5100
Attention: Relationship Manager
The Supervisor is a member of an external, independent dispute
resolution scheme operated by Financial Services Complaints
Limited (FSCL) and approved by the Ministry of Consumer Affairs.
If the Supervisor has not been able to resolve your issue, you
can refer the matter to FSCL by submitting a complaint form on
FSCL’s website (www.fscl.org.nz), emailing complaints@fscl.org.
nz, calling FSCL on 0800 347 257, or writing to FSCL at PO Box
5967, Wellington 6145. The scheme will not charge a fee to any
complainant to investigate or resolve a complaint.
Complaints may also be made to the Financial Markets Authority
through their website www.fma.govt.nz.
10. WHERE YOU CAN FIND
MORE INFORMATION
10.1 OFFER REGISTER
Further information relating to Synlait and the Bonds is available
on the Offer Register.
The information contained on that register includes a copy of the
Trust Deed and other material information.
The Offer Register can be accessed at www.companies.govt.
nz/disclose, offer number (OFR12776). A copy of the information
on the Offer Register is available on request to the Registrar of
Financial Service Providers (email: registrar@fspr.govt.nz).
10.2 COMPANIES OFFICE
Further information relating to Synlait is also available on
the public register at the Companies Office of the Ministry of
Business, Innovation and Employment. This information can be
accessed free of charge on the Companies Office website at
www.companies.govt.nz/companies.
10.3 NZX AND ASX DISCLOSURES
As Synlait is listed, it makes half-yearly and annual
announcements to NZX and ASX and such other announcements
to comply with the continuous disclosure rules of the Listing Rules
and ASX Listing Rules (including as modified by any waivers,
rulings or exemptions applicable to Synlait) from time to time.
You can obtain information provided to NZX by Synlait in
accordance with the Listing Rules free of charge by searching
under Synlait's stock code "SML" on the NZX website
(www.nzx.com). You can also obtain information provided to
ASX by Synlait in accordance with the ASX Listing Rules free of
charge by searching under Synlait's stock code "SM1" on the ASX
website (www.asx.com.au).
Synlait has been designated as a "Non-Standard" (NS) issuer by
NZX because Bright Dairy and Food Co Limited (which holds its
shares in Synlait through its wholly-owned subsidiary, Bright Dairy
Holdings Limited) has the right to appoint four Directors to the
Board.
11. HOW TO APPLY
All of the Bonds offered under the Offer (including any
oversubscriptions) have been reserved for subscription by
clients of the Joint Lead Managers, Co-Manager, NZX Firms and
other approved financial intermediaries invited to participate in
the Bookbuild.
There is no public pool for the Bonds.
This means that you can only apply for Bonds through a NZX
Firm or approved financial intermediary who has obtained an
allocation. You can find an NZX Firm by visiting www.nzx.com/
services/market-participants/find-a-participant.
The NZX Firm or financial intermediary will:
• provide you with a copy of this PDS (if you have not
already received a copy);
• explain what you need to do to apply for Bonds; and
• explain what payments need to be made by you, and
by when.
Your financial adviser will be able to advise you as to what
arrangements will need to be put in place for you to trade the
Bonds, including obtaining a Common Shareholder Number
(CSN), an Authorisation Code (FIN) and opening an account with
an NZX Firm as well as the costs and timeframes for putting such
arrangements in place.
24
12. CONTACT INFORMATION
ISSUER
Synlait Milk Limited
1028 Heslerton Road,
RD13,
Rakaia 7783
Phone: +64 3 373 3000
NEW ZEALAND LEGAL ADVISERS
Bell Gully
Level 21
Vero Centre
48 Shortland Street
Auckland 1010
Level 21
ANZ Centre
171 Featherston Street
Wellington 6140
Phone: +64 (9) 916 8800
SUPERVISOR
The New Zealand Guardian Trust Company Limited
Level 14,
191 Queen Street
Auckland 1010
Phone: +64 9 909 5100
SECURITIES REGISTRAR & PAYING AGENT
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna
Auckland 0622
Phone: +64 (9) 488 8700
ARRANGERS AND JOINT LEAD MANAGERS
ANZ Bank New Zealand Limited
Level 10, ANZ Centre
171 Featherston Street
Wellington 6011
Phone: 0800 269 476
Jarden Securities Limited
Level 39, ANZ Centre
23-29 Albert Street
Auckland 1010
Phone: 0800 005 678
OTHER JOINT LEAD MANAGERS
Deutsche Craigs Limited
Level 36 Vero Centre
48 Shortland Street
Auckland 1010
Phone: 0800 226 263
Forsyth Barr Limited
Level 23 Lumley Centre
88 Shortland Street
Auckland 1010
Phone: 0800 367 227
CO-MANAGER
Hobson Wealth Partners Limited
Level 4, Australis Nathan Buildings
37 Galway Street, Britomart
Auckland 1010
Phone: +64 9 363 8700
25
$ or NZ$New Zealand dollars
ArrangersANZ Bank New Zealand Limited and Jarden Securities Limited
ASXASX Limited, or the financial market operated by ASX Limited, as the context requires,
also known as the Australian Securities Exchange
ASX Listing RulesThe listing rules of ASX, as amended from time to time
Bank Facility AgreementThe Synlait Guaranteeing Group’s senior loan facilities comprising:
• the Loan Facilities Agreement dated 26 June 2013 as amended and restated from time to
time, including by agreement dated 29 August 2019, made between Synlait Milk Finance
Limited (as Borrower), the Issuer and the other Guarantors named therein, ANZ Bank New
Zealand Limited (as Facility Agent and Security Agent) and ANZ Bank New Zealand Limited
and Bank of New Zealand (as Lenders); and
• any additional or successor bank facility or advance of borrowed money that is secured
under the security trust deed dated 18 July 2007 between the Issuer and ANZ Bank New
Zealand Limited (as Security Agent), as amended and restated from time to time, and any
successor security trust deed or similar replacement agreement or which has the benefit of
another security interest.
Assuming net proceeds of at least $180 million are raised under the Offer, following application
of those proceeds to repay a portion of bank drawings and the cancellation of some existing
facilities, the senior loan facilities under the Bank Facility Agreement will be:
• Seasonal WC Facility with a limit of $250 million; and
• Revolving Credit Facilities with an aggregate limit of $250 million.
Bank Facility LendersThe lenders for the time being under the Bank Facility Agreement and/or any facility agent or
security trustee acting on their behalf and any other person entitled to the benefit of the Bank
Facility Agreement or the security trust deed dated 18 July 2007 between Synlait and ANZ Bank
New Zealand Limited (as Security Agent), as amended and restated from time to time, and any
successor security trust deed or similar replacement agreement. As at the date of this PDS the
Bank Facility Lenders are ANZ Bank New Zealand Limited and Bank of New Zealand
BoardSynlait's Board of Directors
Bondholder or you A person whose name is entered in the Bond Register as a holder of a Bond
BondsThe bonds constituted and issued pursuant to the Trust Deed and offered pursuant to this PDS
Bond RegisterThe register in respect of the Bonds maintained by the Securities Registrar
BookbuildThe bookbuild process to determine the Issue Margin, expected to be conducted by the Joint
Lead Managers on the Rate Set Date
Business Day A day on which the NZX Debt Market is open for trading
Change of Control EventThe occurrence of one or more of the following:
• an offer is made to acquire all or some of Synlait’s securities which would result in the
offeror (including associates of the offeror) holding or controlling more than 50% of the
voting rights of Synlait and:
• the offer has been accepted by the requisite number of holders of voting rights and
has become unconditional; and
• all regulatory approvals in respect of the offer have been obtained; or
• any circumstance or event arises which results in a person (together with its associates)
holding or controlling more than 50% of the voting rights of Synlait.
Closing Date Friday, 13 December 2019 at 5.00pm
13. GLOSSARY
26
Daigou channelAn e-commerce channel allowing Chinese buyers to acquire products from overseas vendors
who may obtain them from outside China
DirectorA director of Synlait
Event of DefaultEach event set out in clause 14 of the Master Trust Deed and clause 9 of the Series Supplement,
which are summarised in section 5 of this PDS (Key features of the Bonds)
First Interest Payment DateTuesday, 17 March 2020
FYThe financial year ended or ending 31 July of that year
GuaranteeThe guarantee provided by the Guarantors
GuarantorsAs at the Issue Date, Synlait Milk Finance Limited, The New Zealand Dairy Company Limited,
Eighty Nine Richard Pearse Drive Limited and Synlait Foods (Talbot Forest) Limited
Inland Revenue The New Zealand Inland Revenue Department
Interest Payment DatesQuarterly in arrear on 17 March, 17 June, 17 September and 17 December each year (or if that day
is not a Business Day, the next Business Day), with the First Interest Payment Date being
17 March 2020
Interest payments are subject to the Interest Deferral Condition
Interest Deferral ConditionIn respect of the payment of interest on an Interest Payment Date, if:
• Synlait would not satisfy the solvency test (as defined in section 4 of the Companies Act)
immediately following the payment of accrued but unpaid interest on that Interest Payment
Date; or
• in an agreement made with or for the benefit of a Senior Creditor:
• Synlait has breached a covenant or undertaking and the breach has not been waived
or remedied to the satisfaction of the Senior Creditor;
• an event of default (however described) has occurred and has not been waived or
remedied to the satisfaction of a Senior Creditor or a cancellation notice has been
issued by a Senior Creditor in respect of more than $35 million of commitments as a
result of an event of review (in each case, however described); or
• a breach of covenant or undertaking or event of default would occur if accrued but
unpaid interest on the Bonds was paid on the Interest Payment Date
Interest Rate The rate of interest per annum payable on the Principal Amount of the Bonds as announced by
Synlait through NZX on the Rate Set Date
Issue DateTuesday, 17 December 2019
Issue MarginThe margin determined by Synlait in conjunction with the Joint Lead Managers following the
Bookbuild, as announced via NZX on the Rate Set Date
Issuing GroupSynlait and all of its subsidiaries (as defined in section 6 of the Financial Markets Conduct Act 2013)
Joint Lead Managers ANZ Bank New Zealand Limited, Jarden Securities Limited, Deutsche Craigs Limited and Forsyth
Barr Limited
Listing Rules The listing rules applying to the NZX Debt Market, as amended from time to time
Lodgement DateFriday, 29 November 2019
Master Trust DeedThe Master Trust Deed dated 28 November 2019 between Synlait, the Guarantors and the
Supervisor pursuant to which certain bonds, including the Bonds, may be issued (as amended or
supplemented from time to time), a copy of which is available on the Offer Register
Maturity Date Tuesday, 17 December 2024
Minimum Interest RateThe minimum interest rate announced by Synlait on the Lodgement Date
NZXNZX Limited
NZX Debt Market The debt security market operated by NZX
27
NZX FirmAny company, firm, organisation or corporation designated or approved as a Primary Market
Participant (as defined in the NZX Participant Rules made by NZX from time to time) from time to
time by NZX
NZX Main Board The main board equity security market operated by NZX
Offer The offer of Bonds made by Synlait under this PDS
Offer RegisterThe online offer register maintained by the Companies Office and the Registrar of Financial
Service Providers known as "Disclose" and accessible online at www.companies.govt.nz/
disclose offer number (OFR12776)
Opening Date Monday, 9 December 2019
PDS This product disclosure statement
Principal Amount $1.00 per Bond
Rate Set Date Friday, 6 December 2019
RedemptionThe redemption of your Bonds by Synlait, and Redeem, Redeemed and Redeeming have
corresponding meanings
Redemption Amount The Principal Amount of the Bonds plus any accrued but unpaid interest, including
deferred interest
Securities RegistrarComputershare Investor Services Limited
Senior CreditorA creditor of Synlait whose claim in a liquidation would rank ahead of Bondholders being:
• the Bank Facility Lenders in respect of all amounts due in relation to the Bank Facility
Agreement;
• creditors in respect of other secured borrowed money (to the extent that such borrowed
money is repaid from proceeds of enforcement of the relevant security); and
• all other creditors whose claims in a liquidation are preferred by law
Series Supplement The Series Supplement dated 28 November 2019 between Synlait and the Supervisor setting
the terms and conditions of the Bonds (as amended or supplemented from time to time), a copy
of which is available on the Offer Register
Special ResolutionA resolution passed with the support of Bondholders holding not less than 75% of the aggregate
Principal Amount of Bonds held by those persons voting
Supervisor The New Zealand Guardian Trust Company Limited or such other supervisor as may hold office
as supervisor under the Trust Deed from time to time
Swap RateThe mid-market swap rate for an interest rate swap of a term matching the period from the Issue
Date to the Maturity Date, as calculated by the Arrangers in consultation with Synlait, according to
market convention, with reference to Bloomberg page 'ICNZ4' (or any successor page) on the Rate
Set Date and expressed on a quarterly basis (rounded to 2 decimal places, if necessary, with 0.005
being rounded up)
SynlaitSynlait Milk Limited
Synlait Guaranteeing GroupSynlait and each Guarantor (but, for the avoidance of doubt, not including Synlait Business
Consulting (Shanghai) Limited)
Tax Event A Tax Event will occur if Synlait (having taken appropriate legal or tax advice) determines that
there has been, or there will be, a change in, or amendment to, the laws, rulings or directives of
New Zealand or of any authority or agency in New Zealand having power to tax or administer
tax (or in the application or official interpretation of such laws, rulings or directives) that applies,
or is to apply, after the Issue Date of the Bonds, as a result of which:
• any interest incurred on the Bonds, including Deferred Interest, is not, or will not be, fully
deductible for the purposes of New Zealand income tax; or
• Synlait would be, or is likely to be, exposed to any other adverse tax consequence in
relation to any Bonds
Trust Deed The Master Trust Deed, and, where the context requires, includes the Series Supplement
---
1
The indicative terms sheet (“Terms Sheet”) should be read
together with the product disclosure statement (“PDS”) dated 29
November 2019 for the offer of unsecured, subordinated fixed
rate bonds (“Bonds”) by Synlait Milk Limited (the “Offer”). The
PDS is available at www.synlait.com/bondoffer and can also be
obtained from the Joint Lead Managers or your usual financial
adviser. Investors must obtain and read a copy of the PDS before
they apply for Bonds.
Capitalised terms used but not defined in the Terms Sheet have
the meaning given to them in the PDS.
INDICATIVE TERMS SHEET FOR AN OFFER OF UP
TO $150 MILLION PLUS UP TO $50 MILLION OF
OVERSUBSCRIPTIONS (AT SYNLAIT’S DISCRETION)
OF UNSECURED, SUBORDINATED FIXED RATE BONDSJOINT LEAD MANAGERS
CO-MANAGER
INDICATIVE
TERM SHEET
1
IssuerSynlait Milk Limited (the “Issuer” or “Synlait”)
InstrumentUnsecured, subordinated fixed rate bonds
Offer amountUp to $150 million plus up to $50 million in oversubscriptions at Synlait’s discretion.
Maturity DateTuesday, 17 December 2024
Purpose of the OfferThe net proceeds of the Offer will be used to repay a portion of the Synlait Guaranteeing Group’s
bank debt. The Offer will also provide diversification of funding sources to support Synlait’s
growth strategy.
No Public PoolThere is no public pool for the Bonds.
All Bonds, including any oversubscriptions, have been reserved for subscription by clients of
the Joint Lead Managers, Co-Manager, NZX Firms and other approved financial intermediaries
invited to participate in the bookbuild conducted by the Joint Lead Managers.
Ranking of the BondsThe Bonds will be unsecured and on liquidation of the Issuer will rank:
• behind Synlait’s senior bank debt, other secured borrowed money and other claims
preferred by law;
• equally with all unsecured and unsubordinated financial indebtedness of Synlait; and
• ahead of claims of holders of ordinary shares in Synlait and holders of securities and other
financial products and financial indebtedness that rank after the Bonds.
GuaranteeThe Bonds will be guaranteed by Synlait Milk Finance Limited and the guarantors under the
Bank Facility Agreement. The only Guarantors as at the Issue Date of the Bonds will be Synlait
Milk Finance Limited, The New Zealand Dairy Company Limited, Eighty Nine Richard Pearse
Drive Limited and Synlait Foods (Talbot Forest) Limited, each of which are wholly-owned
subsidiaries of the Issuer.
The obligations of the Guarantors under the Guarantee will be unsecured and subordinated to
the extent that, in the event of a liquidation, Synlait’s senior bank debt, other secured borrowed
money and other claims preferred by law will be entitled to be paid in priority to Bondholders
receiving payment under the Guarantee.
More information about the terms of the Guarantee under the Master Trust Deed is set out in
section 5.3 of the PDS (Guarantees).
Interest RateThe Bonds will pay a fixed rate of interest from the Issue Date to but excluding the Maturity
Date, subject as described under “Interest Deferral” below.
The Interest Rate will be set at the sum of the Swap Rate plus the Issue Margin, but in any case
will be no less than the Minimum Interest Rate, and will be announced via the NZX on or about
the Rate Set Date.
The Issue Margin will be determined by Synlait in conjunction with the Joint Lead Managers
following a bookbuild.
Indicative Issue Margin and
Minimum Interest Rate
The indicative Issue Margin is 2.50% - to 2.70% per annum and the Minimum Interest Rate will
be 3.70% per annum.
Swap RateThe mid-market swap rate for an interest rate swap of a term matching the period from the
Issue Date to the Maturity Date, as calculated by the Issuer in conjunction with the Arrangers,
according to market convention, with reference to Bloomberg page ‘ICNZ4’ (or any successor
page) on the Rate Set Date and expressed on a quarterly basis (rounded to 2 decimal places, if
necessary, with 0.005 being rounded up).
2
Interest Payment DatesInterest is scheduled to be paid quarterly in arrear in equal payments on 17 March, 17 June, 17
September and 17 December in each year (or if that scheduled day is not a Business Day, the
next Business Day) up to and including the Maturity Date, subject as described under “Interest
Deferral” below.
Interest DeferralThe payment of interest on an Interest Payment Date (other than a date on which the Bonds
are repaid) is subject to no Interest Deferral Condition existing on the Interest Payment Date. In
broad terms, the Interest Deferral Conditions prevent interest from being paid if:
• Synlait is not solvent or would not be solvent after making the payment; or
• An event of default or breach (including breach of any covenant or undertaking) or
cancellation of more than $35 million of commitments following event of review has
occurred under an agreement made with or for the benefit of a Senior Creditor or would
occur after making the payment.
The payment of interest on a date on which the Bonds are Redeemed is not subject to any
Interest Deferral Condition, and all accrued interest (including previously deferred interest)
must be repaid if Bonds are Redeemed on any such repayment date regardless of whether an
Interest Deferral Condition exists. However, Redemption as a result of a Tax Event or a Change
of Control Event is not permitted if an Interest Deferral Condition exists or would exist if the
Redemption was made.
Any deferred interest will also accrue interest at the Interest Rate compounding on each
following Interest Payment Date until paid.
Dividend Stopper Synlait will not be able to pay any dividend or make any other distributions on or with respect
to Ordinary Shares or other securities or indebtedness ranking subordinate to the Bonds,
or provide any financial assistance for the acquisition of certain Synlait Guaranteeing Group
securities, if and for so long as there is any unpaid or deferred interest.
Redemption AmountPrincipal Amount plus any accrued but unpaid interest, including deferred interest.
Change of Control EventThe occurrence of one or more of the following:
• an offer is made to acquire all or some of Synlait’s securities which would result in the
offeror (including its associates) holding or controlling more than 50% of the voting rights in
Synlait, and the offer is, or becomes, unconditional and all regulatory approvals have been
obtained; and/or
• any circumstance or event arises which results in a person (together with its associates)
holding or controlling more than 50% of the voting rights of Synlait.
If a Change of Control Event occurs then Bondholders have the right to elect that Synlait must
Redeem all of their Bonds at the greater of:
• the Redemption Amount; or
• the volume weighted average ex-interest price of the Bonds for the 20 Business Days
preceding the date on which the Change of Control Event occurs plus accrued interest.
Synlait may elect to Redeem all Bonds early if fewer than 50 million Bonds will be outstanding
as a result of Redemption elections made by Bondholders after a Change of Control Event.
However, no Redemption as a result of a Change of Control Event is permitted if an Interest
Deferral Condition exists or would exist if the Redemption was made.
Tax EventA Tax Event will occur if there has been, or there will be, a change in New Zealand law applying
after the Issue Date, as a result of which:
• any interest payable on the Bonds, including interest which has been deferred, is not, or
will not be, fully deductible for the purposes of New Zealand income tax; or
• Synlait would be, or is likely to be, exposed to any other adverse tax consequences in
relation to the Bonds.
If a Tax Event occurs, Synlait may elect to Redeem all (but not some only) of the Bonds at the
Redemption Amount. However, no Redemption as a result of a Tax Event is permitted if an
Interest Deferral Condition exists or would exist if the Redemption was made.
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Events of DefaultThe Supervisor may in its discretion, and must upon being directed to do so by a Special
Resolution of Bondholders, declare the Bonds to be due and payable at the Redemption
Amount if one of the following events occurs:
• a failure by Synlait to make a payment in respect of the Bonds, including on Redemption,
when due, and that breach is not fully remedied within 10 Business Days;
• a failure by Synlait to comply with the Dividend Stopper restriction;
• a failure by Synlait or any Guarantor to comply in a material respect with any material
obligation under the Trust Deed;
• Synlait or any Guarantor makes a material misrepresentation under the Trust Deed;
• indebtedness in respect of borrowed money of more than $35 million is not paid when
due, or is called up as a result of a default or a commitment for such indebtedness is
cancelled; or
• one or more insolvency events occurs.
A failure to pay interest that has been deferred because an Interest Deferral Condition exists on
the relevant Interest Payment Date is not an Event of Default.
ListingApplication has been made to NZX for permission to quote the Bonds on the NZX Debt Market
and all requirements of NZX relating to that quotation that can be complied with on or before
the date of distribution of the PDS have been duly complied with. However, the Bonds have
not been approved for trading and NZX accepts no responsibility for any statement in the
PDS or this Terms Sheet. NZX is a licensed market operator, and the NZX Debt Market is a
licensed market, under the Financial Markets Conduct Act 2013. Synlait has been designated
as a "Non-Standard" (NS) issuer by NZX because Bright Dairy Holdings Limited, its cornerstone
shareholder, has the right to appoint four Directors to the Board.
NZX Debt Market ticker code SML010 has been reserved for the Bonds.
Issue Price$1.00 per Bond, being the Principal Amount of each Bond.
Minimum Application Amount$5,000 per Bond, and multiples of $1,000 thereafter
Record Date5.00pm on the tenth calendar day before the due date for payment (or if that day is not a
Business Day, the preceding Business Day).
ISINNZSMLDT001C4
Brokerage 0.75% brokerage plus 0.50% on firm allocations paid by Synlait.
Governing LawNew Zealand
ArrangersANZ Bank New Zealand Limited (“ANZ”) and Jarden Securities Limited (“Jarden”)
Joint Lead ManagersANZ, Deutsche Craigs Limited, Forsyth Barr Limited and Jarden
Co ManagerHobson Wealth Partners Limited
Registrar and Paying AgentComputershare Investor Services Limited
Bond SupervisorThe New Zealand Guardian Trust Company Limited
DocumentationThe terms of the offer of the Bonds are set out in the PDS.
Other terms of the Bonds are set out in:
• the Master Trust Deed; and
• the Series Supplement.
You should read each of these documents. Copies may be obtained from the Offer Register at
www.companies.govt.nz/disclose, offer number OFR12776.
Copies are also available at www.synlait.com/bondoffer.
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PDS lodged29 November 2019
Rate Set Date6 December 2019
Opening Date9 December 2019
Closing Date13 December 2019
Issue / Allotment Date17 December 2019
Expected date of initial
quotation and trading on
the NZX Debt Market
18 December 2019
Maturity Date 17 December 2024
The dates set out in this Terms Sheet are indicative only and subject to change. Synlait may vary the timetable in its absolute
discretion and without notice. Changes will be advised by way of announcement through NZX.
Synlait reserves the right to cancel the Offer.
SELLING RESTRICTIONS
The Bonds are being offered only in New Zealand. Synlait has
not taken and will not take any action which would permit a
public offering of Bonds, or possession or distribution of any
offering material in respect of the Bonds, in any country or
jurisdiction where action for that purpose is required (other than
New Zealand). The Bonds may only be offered for sale or sold
in conformity with all applicable laws and regulations in any
jurisdiction in which they are offered, sold or delivered.
Any product disclosure statement, circular, advertisement or
other offering material in respect of the Bonds (including this
Terms Sheet) may only be published, delivered or distributed in
compliance with all applicable laws and regulations (including
those of the country or jurisdiction in which the material is
published, delivered or distributed).
By subscribing for or otherwise acquiring any Bonds, each
Bondholder agrees to indemnify, among others, Synlait, the
Supervisor, the Arrangers, the Joint Lead Managers and the Co-
Manager and their respective directors, officers, employees and
agents in respect of any loss, cost, liability or damages suffered
as a result of an investor breaching the selling restrictions
referred to in this section.
IMPORTANT DATES
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.