Notice of Special Shareholders’ Meeting
Synlait Milk Limited · 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand · +643 373 3000 · www.synlait.com
NZX: SML
ASX: SM1
25 June 2024
Notice of Special Shareholders’ Meeting
Synlait Milk Limited’s (Synlait) Special Shareholders’ Meeting will be held on Thursday 11 July 2024 at
2.00pm, in person at Synlait's Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia,
Canterbury, New Zealand, and online at: www.meetnow.global/nz
The meeting is to vote on the resolution to approve the proposed entry into a $130 million shareholder
loan to be made available to Synlait by Bright Dairy International Investment Limited, a related
company of Bright Dairy Holding Limited, Synlait’s 39.01% shareholder. If the resolution is approved,
Synlait will fully draw down the loan to meet the $130 million payment due to its banks on 15 July 2024.
Importance of the resolution to Synlait’s future
Synlait will only be able to meet its $130 million payment obligation to its banks on 15 July 2024 if the
resolution is approved by shareholders other than Bright Dairy by way of an ordinary resolution. An
ordinary resolution is a resolution that is approved by a simple majority of the votes of those
shareholders entitled to vote and voting on the question.
If the $130 million payment is not made and the banks do not agree to alternative arrangements, the
Board believes Synlait will need to cease trading or initiate a formal insolvency process.
Recommendation of Independent Directors
The Independent Directors of Synlait unanimously recommend that shareholders vote in favour of the
resolution.
Voting intentions of major shareholders
Bright Dairy cannot vote in favour of the resolution; as such, the Directors appointed by Bright Dairy
have abstained from making a recommendation.
Whilst as at the date of the notice of meeting Synlait and The a2 Milk Company Limited have engaged
in discussions, The a2 Milk Company Limited has not determined how it will vote on the resolution. If
Synlait is advised of a change of status of The a2 Milk Company Limited's voting intentions, it will
update shareholders by way of market announcement.
The deadline for returning proxy votes is 2.00pm on Tuesday 9 July.
Independent appraisal report
In accordance with the NZX Listing Rules, the Board commissioned an independent appraisal report for
shareholders to support their consideration of the resolution. Shareholders should read the report
prepared by Northington Partners in full alongside the notice of meeting. Both documents (released
with this announcement) contain important information that should be carefully considered before
voting. Overall, the independent appraisal report concluded that the terms and conditions of the
shareholder loan are fair to Synlait shareholders not associated with Bright Dairy.
Synlait Milk Limited · 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand · +643 373 3000 · www.synlait.com
Banking facilities update
Included within the Notice of Meeting is an update on Synlait’s existing banking facilities.
As announced on 2 April 2024 at the half year result, the banks agreed to short-term covenant
relaxation in the company’s existing facility to provide time to reduce debt. Since that date, Synlait has
requested waivers in respect of its leverage ratios and interest coverage ratio, and a deferral of the
maturity/limit step downs of relevant facilities through to the end of July 2024.
The banks’ agent has confirmed that each of the banks have received credit approval to the covenant
waivers and the deferral of the relevant maturity/limit step downs in June and July until such time that
Synlait’s planned equity capital raising is completed. The approval is subject to the addition of a
covenant to achieve minimum adjusted EBITDA for FY24 of $45 million.
Synlait and the banks are in the process of negotiating the documentation for these waivers and
satisfying any applicable conditions. Further information can be found in the Notice of Meeting.
Synlait Chair George Adams commented: “Synlait is now progressing at pace a series of structural
initiatives to address the scale of challenges we face today.”
“We are committed to resetting Synlait’s balance sheet, with the support of Bright Dairy, to ensure we
return to a position where we can deliver the growth potential we see in our core Advanced Nutrition
and Foodservice businesses.”
“The Board and management have spent considerable time aligning on Synlait’s business recovery
plan for this financial year and next, focusing on reducing debt, accelerating volume growth, and
optimising cost and operational performance. We are committed to delivering on this for the benefit of
all our stakeholders – customers, farmers, shareholders, staff, and suppliers.”
On behalf of Bright Dairy Appointed Directors, Director Julia Zhu commented: “In line with Bright’s
long-term support of the New Zealand agriculture sector, in particular, Synlait’s business, its farmers,
staff, and all shareholders – this $130 million shareholder loan facility is one part of Bright’s wider
support to see Synlait return to a much stronger financial and operating position, as early as practicable
in this economic cycle.”
“We are deeply committed to Synlait, believing its assets and operations to offer significant value and
opportunity within regional and global dairy markets. Notwithstanding Synlait’s short-term challenges,
we see a pathway to growth and future value, and we will continue to work closely with the Board and
management team to do what we can to help with the company’s turnaround plan.”
“Bright Dairy fully supports Synlait raising equity capital, subject to finalised terms and all necessary
approvals being received, to more substantially reset the company’s equity and debt position to
provide a platform to return to sustainable growth for Synlait’s farmers and all shareholders.”
The Synlait Board, management, and its advisers are continuing to progress the structure, terms and
conditions of a proposed equity raising and will further update shareholders by the end of August,
possibly earlier, by market announcement.
For more information contact:
Media
Allan Swann
Corporate Communications Manager
P: +64 21 211 4874
E: allan.swann@synlait.com
Investors
Hannah Lynch
Head of Strategy & Corporate Affairs
P: +64 21 252 8990
E: hannah.lynch@synlait.com
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PROXY/VOTING FORM FOR THE SYNLAIT MILK LIMITED 2024 SPECIAL MEETING
APPOINTMENT OF PROXY
OR CORPORATE REPRESENTATIVE
If you do not plan to attend and vote at the Special Meeting, you
may appoint a proxy to attend and vote on your behalf. If you are a
corporate shareholder, you may appoint a corporate representative
to attend and vote on your behalf. You can appoint anyone to act
as your proxy or corporate representative. Your proxy or corporate
representative does not have to be another Synlait shareholder. The
Chair of the meeting, and the other Synlait Directors, are willing to
act as proxy or corporate representative for shareholders.
If you do not name a proxy but otherwise complete the form, or your
named proxy does not attend the meeting, then the Chair of the
meeting will act as your proxy to cast any express votes indicated in
your Proxy Form, subject to certain restrictions explained below.
To appoint a proxy or corporate representative, enter the name
of your proxy or corporate representative, or ‘Chair’ in the space
allocated in ‘Step 1’ and complete this form. Alternatively, you can
appoint a proxy or corporate representative online at:
www.investorvote.co.nz
If your proxy is not the Chair of the meeting, or any other Director
of the company, and they are attending the meeting online, please
ensure that you provide your proxy’s phone and email address
when completing the Proxy Form. If this information is not provided,
we cannot guarantee admission of your proxy to the online meeting.
VOTING RESTRICTIONS
Pursuant to Listing Rule 6.3.1, Bright Dairy International and any
Associated Person (as that term is defined in the NZX Listing Rules)
of Bright Dairy International, including Bright Dairy Holding Limited,
are prohibited from voting in favour of the resolution other than
where the vote is cast by a Bright Director as a proxy for a person
who is entitled to vote, in accordance with express directions on
this Voting/Proxy Form to vote for or against the resolution. The
Company will disregard any votes cast on the resolution by any
persons to whom the foregoing applies.
Synlait Milk Limited (Synlait) has called a Special Meeting to be held on Thursday 11 July 2024 at 2.00pm (NZT). The Special Meeting will
be held in person at Synlait's Dunsandel facility, located at 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand, and online via the
Computershare meeting platform at: www.meetnow.global/nz
VOTING
Direct your proxy or corporate representative how to vote by
marking one of the boxes opposite each item of business. If you do
not mark a box your proxy or corporate representative may vote as
they choose. If you mark more than one box next to an item, your
vote will be invalid.
The Chair and the other Directors intend to vote all discretionary
proxies in favour of the resolutions to the extent permitted by
law, the NZX Listing Rules, ASX Listing Rules and the Company’s
Constitution.
If you mark more than one box next to an item of business, your vote
will be invalid on that item.
SIGNING INSTRUCTIONS FOR PROXY FORMS
Individual holding
Where your shareholding is in a single name, the shareholder or
their attorney
1
must sign this Proxy Form.
Joint holding
Where your shareholding is in more than one name, all the
shareholders, or their attorneys
1
, should sign.
Corporate shareholder
This Proxy Form must be signed by a duly authorised officer acting
under express or implied authority of the corporate shareholder,
or a Director jointly with another Director where there is more than
one Director, or the sole Director, or an attorney¹ appointed by
the company.
1. If this Proxy Form is signed under a power of attorney, it must be
accompanied by:
• a copy of the Power of Attorney, certified by a Solicitor, Justice of the
Peace or Notary Public (unless it has already been noted by Synlait or
Computershare Investor Services Limited); and
• a signed certificate of non-revocation of the power of attorney.
Lodge your proxy online, 24 hours a day, 7 days a week at: www.investorvote.co.nz
YOUR SECURE ACCESS INFORMATION
Control Number: CSN/Shareholder Number:
Please note: You will need your CSN/Shareholder Number and postcode or country of residence (if outside New Zealand)
to securely access InvestorVote and then follow the prompts to appoint your proxy or exercise your vote online.
FOR YOUR PROXY TO BE EFFECTIVE, IT MUST BE RECEIVED BY 2.00PM ON TUESDAY 9 JULY 2024
LODGE YOUR PROXY
Online: www.investorvote.co.nz
By mail: Computershare Investor Services Limited Private Bag
92119, Auckland 1142, New Zealand (if mailing within New Zealand,
use the pre-paid envelope provided. If mailing from outside New
Zealand, use the return envelope but add postage).
Name Line 1
Name Line 2
Address Line 1
Address Line 2
Address Line 3
Address Line 4
Scan the QR code
to vote now.
PROXY/CORPORATE REPRESENTATIVE VOTING FORM
STEP 1: APPOINT A PROXY/CORPORATE REPRESENTATIVE TO VOTE ON YOUR BEHALF
I/We being a shareholder/s of Synlait Milk Limited
hereby appoint of
or failing that person of
as my/our proxy/corporate representative to act generally at the Special Meeting of Shareholders of Synlait to be held on
Thursday 11 July 2024 commencing at 2.00pm (NZT) or, any adjournment thereof, on my/our behalf, and to vote in accordance
with the following directions, or if ‘Proxy Discretion’ or no vote is selected, to vote as my/our proxy thinks fit (to the extent
permitted by law, Synlait’s Constitution and the relevant Listing Rules) on the resolutions listed below, and on any resolution(s) to
amend any of the resolution(s), or any resolution(s) so amended, and on any other resolution(s) proposed at the meeting (or any
adjournment thereof) to give effect to my/our intention as set out below where possible.
If your proxy is not the Chair of the meeting or another Director of Synlait Milk Limited, please ensure that you provide their
contact details (phone and email address) below. If this information is not provided, your proxy’s admission to the online meeting
is not guaranteed.
Proxy contact details
Phone Email
Ordinary Resolution
Resolution 1: “That the Shareholder Loan, as described in the Notice of
Meeting dated 25 June 2024, be approved under and for the
purposes of NZX Listing Rules 5.1.1(b) and 5.2.1.”
For
AgainstAbstain
Proxy
Discretion
STEP 2: VOTING INSTRUCTIONS
Please note if you mark the ‘Abstain’ box for an item, you are directing your proxy or corporate representative not to vote
on your behalf, and your votes will not be counted in calculating the required majority. If you do not mark a box, or mark
‘Proxy Discretion’ your proxy or corporate representative may determine whether and how to vote. If you mark more than
one box, your vote on that resolution is invalid. This form is to be used to vote as follows on the following resolutions
(add a tick to the box to indicate your vote):
STEP 3: SHAREHOLDER QUESTIONS
Shareholders present at the Special Meeting will have the opportunity to ask questions. If you cannot attend the Special Meeting
but would like to ask a question you can email it to: investors@synlait.com
Questions need to be submitted by 2.00pm on Tuesday 9 July 2024. The Board will answer questions at the meeting as
further described in the Notice of Meeting.
SIGN: SIGNATURE AND NAME OF SHAREHOLDER(S) THIS SECTION MUST BE COMPLETED.
Name
Shareholder 1 – Individual / Sole
Director/Director, Authorised
Signatory/Attorney
(Please select one)
Name
Shareholder 2 – Individual / Director,
Authorised Signatory or Attorney (if
more than one)
(Please select one)
Name
Shareholder 3 – Individual /
Authorised Signatory or Attorney 3
(Please select one)
Please refer to the Notice of Meeting for the full resolution text.
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SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
1
NOTICE OF SPECIAL
SHAREHOLDERS’ MEETING
SYNLAIT MILK
LIMITED
You are invited to Synlait Milk Limited’s (Synlait)
Special Shareholders’ Meeting on Thursday, 11 July
2024 at 2.00pm (NZST).
The Special Shareholders’ Meeting will be held in person
at Synlait’s Dunsandel facility, located at 1028 Heslerton
Road, RD13 Rakaia, Canterbury, New Zealand, and online
This is an important document and requires your immediate attention. You should carefully read it in its entirety (including the Independent Report from
Northington Partners Limited that accompanies this Notice of Meeting as the Appendix) before deciding whether or not to vote in favour of the resolution. If you
are in any doubt about what you should do, you should seek advice from your broker or your financial, taxation or legal adviser immediately.
via the Computershare meeting platform at:
www.meetnow.global/nz
Further details about joining the meeting in person
and online can be found on page 21 and in the
accompanying Virtual Meeting Guide released with
this Notice of Meeting.
IMPORTANT DATES AND TIMES (NZST)
Voting/Proxy Forms to be received by:
2.00pm on Tuesday, 9 July 2024
Record date for voting:
5.00pm on Tuesday, 9 July 2024
Special Shareholders’ Meeting:
2.00pm on Thursday, 11 July 2024
RESOLUTION
To consider and, if thought fit, pass the following
resolution:
That the Shareholder Loan, as described in the
Notice of Meeting dated 25 June 2024, be approved
under and for the purposes of NZX Listing Rules 5.1.1(b)
and 5.2.1.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
2
Purpose of this Notice of Meeting
The purpose of this Notice of Meeting is to:
• inform you about the proposed transaction requiring
Synlait Milk Limited (Synlait) shareholder approval;
• make you aware of the Special Shareholders’ Meeting
to be held at Synlait’s Dunsandel facility, located at 1028
Heslerton Road, RD13 Rakaia, Canterbury, New Zealand,
and online via the Computershare meeting platform at:
www.meetnow.global/nz to vote on the resolution;
• enable you to appraise the implications of the
proposed transaction; and
• help you decide whether to vote for or against the
resolution. If you choose not to vote you should be
aware that whether the resolution is passed or not
will be determined solely by reference to the number
of votes cast by shareholders who do vote.
Voting/Proxy Form
Accompanying this Notice of Meeting is a Voting/Proxy
Form to enable you to vote on the resolution by:
• attending the Special Shareholders’ Meeting, whether
in person or online; or
• appointing a proxy to attend and vote on your behalf
at the Special Shareholders’ Meeting.
You are urged to complete and return the Voting/Proxy
Form as soon as possible if you do not plan to attend the
Special Shareholders’ Meeting.
Sold your shares?
If you have sold your shares, please immediately hand
this document and the accompanying Voting/Proxy Form
to the purchaser or the agent through whom the sale was
made, to be passed to the purchaser.
Your decision
This Notice of Meeting does not consider your individual
investment objectives, financial situation, or needs. You
must make your own decisions and seek your own advice
in this regard.
The information and recommendations contained in this
Notice of Meeting do not constitute, and should not be
taken as constituting, financial advice.
If you are in any doubt as to what you should do, you
should seek advice from your financial, taxation or
legal adviser before making any decision regarding the
proposed transaction.
Forward looking statements
This Notice of Meeting contains certain forward looking
statements. You should be aware that there are risks
(both known and unknown), uncertainties, assumptions
and other important factors that could cause the actual
conduct, results, performance or achievements of
Synlait to be materially different from the future conduct,
market conditions, results, performance or achievements
expressed or implied by such statements or that could
cause future conduct to be materially different from
historical conduct. Deviations as to future conduct, market
conditions, results, performance and achievements are
both normal and to be expected.
Forward looking statements generally may be identified
by the use of forward looking words such as ‘aim’,
‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘forecast’,
‘foresee’, ‘future’, ‘intend’, ‘likely’, ‘may’, ‘planned’,
‘potential’, ‘should’, or other similar words.
Neither Synlait nor any other person gives any
representation, assurance or guarantee that the
occurrence of the events expressed or implied in any
forward looking statements in this Notice of Meeting will
actually occur. You are cautioned against relying on any
such forward looking statements.
Additional information available under Synlait’s
continuous disclosure obligations
Synlait is subject to continuous disclosure obligations
under the NZX Listing Rules which require it to notify
certain material information to NZX. The ASX Listing
Rules also require that Synlait immediately provides to
ASX all the information which it provides to NZX that
is, or is to be, made public. Market announcements by
Synlait are available at www.nzx.com under the ticker
code “SML” and at www.asx.com.au under the ticker
code “SM1”. In particular, Synlait recommends that
you read the Market Update announcement dated
4 June 2024.
Synlait may make additional releases to NZX and ASX
prior to the Special Shareholders’ Meeting. Shareholders
should carefully monitor Synlait’s market announcements
prior to that meeting.
IMPORTANT
INFORMATION
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
3
NZ RegCo
NZ RegCo has provided written confirmation that it
does not object to this Notice of Meeting pursuant to
NZX Listing Rule 7.1.1. However, NZ RegCo accepts no
responsibility for any statement in this Notice of Meeting.
Effect of rounding
Several figures, amounts, percentages, prices, estimates,
calculations of value and fractions in this Notice of
Meeting are subject to the effect of rounding. Accordingly,
actual calculations may differ from amounts set out in this
Notice of Meeting.
Defined terms
Capitalised terms set out in this Notice of Meeting have
the meanings given to them in the Glossary.
Currency
In this Notice of Meeting, a reference to $ is to New
Zealand dollars, unless otherwise stated.
Date of this Notice of Meeting
This Notice of Meeting is given on Tuesday, 25 June 2024.
QUERIES:
If you have any queries in relation to this Notice of Meeting, please contact one of the following:
Synlait on: +64 (0)21 252 8990
Computershare on: 0800 650 034 / +64 9 488 8777
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
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CONTENTS
PAGE
2.
3.
4.
5.
6.
7.
APPENDIX:
DIRECTORY
1.
21
PAGE
23
PAGE
24
PAGE
26
PAGE
57
PAGE
19
PAGE
9
PAGE
6
PAGE
5
PAGE
Notice of Special Shareholders’ Meeting
Explanatory Notes
Glossary
Independent Appraisal Report
Key Dates
Letter From The Chair
Shareholder Loan
Frequently Asked Questions
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
5
Indicative date and time (NZST)Event
Tuesday, 25 June 2024Notice of Meeting – date this Notice of Meeting was
distributed.
Tuesday, 9 July 2024 at 2.00pmClosing time and date for Voting/Proxy Forms for the
Special Shareholders’ Meeting to be submitted.
Tuesday, 9 July 2024 at 5.00pmVoting eligibility time for determining eligibility to
vote at the Special Shareholders’ Meeting.
Thursday, 11 July 2024 at 2.00pmSpecial Shareholders’ Meeting to be held in person
at Synlait’s Dunsandel facility, located at 1028
Heslerton Road, RD13 Rakaia, Canterbury, New
Zealand, and online via the Computershare meeting
platform at: www.meetnow.global/nz
If the resolution is approved by shareholders
On or before 15 July 2024Drawing of Shareholder Loan – estimated time
for funds to be drawn under the Shareholder Loan
(assuming all conditions have been satisfied) to meet
the $130 million payment due to Synlait’s banks.
All dates in the table above are indicative only. In
particular, the timing of completion of the proposed
transaction will depend on the timing of the satisfaction
of its various conditions, as described in this Notice of
Meeting. Any material updates to the timetable will be
announced via the announcement platforms of NZX and
ASX and notified at: www.synlait.com
All references to time in this Notice of Meeting are
references to New Zealand Standard Time (NZST),
unless otherwise stated. Any obligation to do an
act by a specified time in NZST must be done at the
corresponding time in any other jurisdiction.
1. KEY DATES
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
6
25 June 2024
Dear shareholders
On behalf of the Synlait board, I am pleased to enclose this
Notice of Meeting, which outlines important information
regarding the proposed entry into a $130 million loan
facility with Bright Dairy International Investment Limited,
a related company of Synlait’s largest shareholder, Bright
Dairy Holding Limited.
Importance of the resolution to the future of the company
Shareholders will be given the opportunity to vote on the
resolution to approve the Shareholder Loan at the Special
Shareholders’ Meeting on Thursday 11 July 2024. If the
resolution is approved by shareholders (and all conditions
under the Shareholder Loan have been satisfied), Synlait
will draw down the loan in full to meet the $130 million
payment due to its banks on 15 July 2024. Synlait will not
be able to meet that payment obligation to its banks if
the Shareholder Loan is not approved. If that payment
is not made and the banks do not agree to alternative
arrangements, the Board’s view is that Synlait will need to
cease trading or initiate a formal insolvency process.
Key terms of the Shareholder Loan
The Shareholder Loan has been offered to Synlait by Bright
to ensure that the $130 million payment due to the banks
can be met on time and in full. Synlait is in the process of
seeking approval to the Shareholder Loan from its banks.
The banks’ agent has confirmed that each of the banks
have received the credit approvals required to consent
to the Shareholder Loan. Synlait and the banks are in the
process of negotiating the documentation to give effect to
the consent and satisfying any applicable conditions. The
Shareholder Loan will rank in priority of payment behind
those banks and ahead of Synlait’s listed bonds.
The Shareholder Loan is fully documented, comprising a loan
facility of $130 million. The loan facility is initially for a twelve-
month term but can be extended at Synlait’s option for a
further twelve months subject to certain conditions set out in
section three (Shareholder Loan) below. The extension option
can be exercised once for a total term of two years.
For the first twelve months of the Shareholder Loan,
interest is payable quarterly at 8% per annum. If the
extension option is exercised, the interest rate resets
and will be equal to quarterly BKBM + 1.60% per annum
(payable quarterly). In certain circumstances (where
an “Interest Deferral Event” exists), Synlait has the
right for interest to be capitalised rather than paid in
cash (see further details in section three (Shareholder
Loan) below).
2. LETTER FROM
THE CHAIR
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
7
The proceeds of the Shareholder Loan will be applied
towards the $130 million payment which is due to Synlait’s
banks on 15 July 2024. While it will also constitute debt,
the Shareholder Loan is intended to be used as a bridge to
a broader recapitalisation plan for Synlait.
Synlait is required to reduce its bank debt
Our banks, while supportive of Synlait, introduced a
requirement in September 2023 that the amount of
debt owed to them be reduced by $130 million by 31
March 2024. That date was subsequently extended by
agreement of the banks to 15 July 2024. Synlait is now
required to make that repayment of $130 million on
15 July 2024, without a further extension of time. The
Shareholder Loan would replace $130 million of debt
owed to the banks with $130 million of debt owed to
Bright Dairy International.
The Board is extremely aware that Synlait needs to
significantly progress with reducing its debt, reporting
outstanding loans and borrowings of $585 million as at
31 May 2024 including $180 million of Bonds. Our banks
require that the amount of debt be reduced with an
expectation that Synlait will need to deliver covenant ratios
appropriate for this phase of the economic cycle.
Synlait is now progressing at pace a series of structural
initiatives to address the scale of challenges we face
today. It has altered its strategy to focus on its core B2B
Advanced Nutrition and Foodservice channels, where
it believes it has a clear right to win. The Board and
management have spent considerable time aligning on
Synlait’s business recovery plan for this financial year
and next, which has three areas of focus – reducing debt,
accelerating volume growth, and optimising costs and
operational performance.
As announced on 2 April 2024 at the half year result, our
banks agreed to short-term covenant relaxation in our
existing facility to provide us time to reduce debt. Since
that date Synlait has requested waivers in respect of
both its leverage ratios and interest coverage ratio and
a deferral of the maturity/limit step downs of relevant
facilities through to the end of July 2024. The banks’ agent
has confirmed that each of the banks have received credit
approval to the covenant waivers and the deferral of the
relevant maturity/limit step downs in June and July until
such time that Synlait’s planned equity capital raising is
completed (as to which, see below). The approval is subject
to the addition of a covenant to achieve minimum adjusted
EBITDA for FY2024 of $45 million. Synlait and the banks
are in the process of negotiating the documentation for
these waivers and satisfying any applicable conditions.
If documentation for the deferral of the step down of
relevant facility limits and extension of relevant maturity
dates due to occur on 27 June 2024 or 31 July 2024 is
not able to be agreed, Synlait’s drawn debt may exceed
its permitted levels and therefore be in default under the
Bank Facilities on 27 June 2024 and/or 31 July 2024. If
documentation of the ratio waivers is not agreed prior to
31 July 2024, Synlait will likely be in default under the Bank
Facilities on that date.
Even if these waivers are granted, the banks still require
that $130 million is paid on or before 15 July 2024. It is the
Board’s view that Synlait will not be in a position to do that
without the Shareholder Loan. For further information see
section three (Shareholder Loan) under the heading “Bank
Facilities and Bonds”.
Proposed equity capital raising to help reset Synlait’s
balance sheet
To ensure that Synlait’s balance sheet is reset, Synlait is
planning to undertake an equity capital raising. Bright
Dairy has indicated it fully supports Synlait raising equity
capital, subject to terms being finalised, and all necessary
approvals being received, to more substantially re-set the
company’s equity and debt position to provide a platform
to return to sustainable growth for Synlait farmer suppliers
and all shareholders. The Synlait Board and its advisers are
continuing to progress the structure, terms and conditions
of a proposed equity raising and will further update
shareholders by the end of August, possibly earlier, by
market announcement.
In connection with the proposed equity raising, Synlait
is also proposing to concurrently refinance its Bank
Facilities. As part of that refinancing Synlait will be
seeking amended facilities that, upon the completion of
the equity raising, will be available to be drawn to meet
Synlait’s expected working capital and other corporate
requirements as well as allowing for the repayment of
the Bonds. Further information will be provided about the
refinancing once arrangements have been agreed with
the banks.
The Independent Directors fully support the Shareholder
Loan outlined in this Notice of Meeting and unanimously
recommend that shareholders vote in favour of the
resolution at the Special Shareholders’ Meeting. The
directors appointed by Bright have abstained from making
a recommendation.
The shareholder vote to approve the resolution will take
place at the Special Shareholders’ Meeting. In broad terms,
the Shareholder Loan will require approval by way of an
ordinary resolution (greater than 50% of those shares
entitled to vote and voting) because the Shareholder Loan
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
8
is a major transaction for the purposes of NZX Listing Rule
5.1.1(b) and a Material Transaction with a Related Party for
the purposes of NZX Listing Rule 5.2.1. All shareholders
other than Bright Dairy Holding Limited (as a Related Party
of Synlait and an Associated Person of the lender under
the Shareholder Loan) can vote.
Independent Report
In accordance with the NZX Listing Rules, the Board has
commissioned an independent appraisal report from
Northington Partners (refer to the Independent Report in
the Appendix) for the benefit of shareholders to support
their consideration of the resolution to enter into the
Shareholder Loan. Shareholders should carefully read
the Independent Report in full. A summary of some of the
key conclusions reached by Northington Partners is set
out in section five (Notice of Meeting) under the heading
“Conclusion from Independent Report”.
Voting intentions of major shareholders
Bright Dairy Holding Limited is not able to vote in favour
of the Shareholder Loan. This means the voting intentions
of The a2 Milk Company Limited, as the holder of 19.8%
of the shares (which equates to approximately 33% of
the votes eligible to be cast on the resolution), will be
influential in determining the outcome of the resolution to
approve the Shareholder Loan.
Whilst as at the date of this Notice of Meeting Synlait
and The a2 Milk Company Limited have engaged in
discussions, The a2 Milk Company Limited has not
determined how it will vote on the resolution. If Synlait is
advised of a change of status of The a2 Milk Company
Limited’s voting intentions, it will update shareholders by
way of market announcement.
Your vote is important, regardless of how many shares you
own. I strongly encourage you to exercise your right to
vote on this important matter.
Please read this Notice of Meeting carefully. It contains
important information which you should consider before
you vote. You may also wish to seek independent legal,
financial, taxation and other professional advice when
considering your vote.
I would like to sincerely thank shareholders for their
support as we determine Synlait’s next chapter. We look
forward to your participation in the upcoming Special
Shareholders’ Meeting on Thursday, 11 July 2024 at
2.00pm.
Yours sincerely
George Adams
Chair
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
9
The proposed transaction involves the entry into a
loan agreement with Bright Dairy International, with the
proceeds to be used to pay the $130 million due to the
banks on or before 15 July 2024.
The Shareholder Loan is fully documented, comprising a
loan facility of $130 million. The loan facility is initially for a
twelve-month term but can be extended at Synlait’s option
for a further twelve months, subject to certain conditions
being satisfied (see the Extension Option section in the
table below).
The extension option can be exercised once, for a total
term of two years.
For the first twelve months of the Shareholder Loan,
interest is payable quarterly at 8% per annum. If the
extension option is exercised, the interest rate resets
and will be equal to quarterly BKBM + 1.60% per annum
(payable quarterly). The Shareholder Loan is subject to
several conditions, including:
• obtaining Synlait Shareholder approval. This approval
is being sought at the Special Shareholder Meeting;
• an internal resolution of Bright Dairy & Food Co., Ltd.,
approving the Shareholder Loan. As at the date of this
Notice of Meeting, this approval remains outstanding;
• evidence that the Shareholder Loan has been
approved by the State-owned Assets Supervision and
Administration Commission of Shanghai (SASAC) or
any institution authorised by it. As at the date of this
Notice of Meeting, this approval remains outstanding;
• approval to the Shareholder Loan and Shareholder
Loan documents from Synlait’s banks; and
• other customary lending conditions – these are
expected to be satisfied at or about the time that the
Shareholder Loan is drawn upon.
The conditions must be in form and substance satisfactory
to Bright Dairy International.
Bright Dairy International is responsible for seeking the
approvals to the Shareholder Loan referred to in the list of
conditions above from Bright Dairy & Food Co., Ltd. and
SASAC, and must use reasonable endeavours to satisfy
those conditions.
Each of the Synlait Guarantors will guarantee the
obligations of Synlait in respect of the Shareholder Loan.
In addition, the obligations of Synlait and the Synlait
Guarantors in respect of the Shareholder Loan are to
be secured on a second ranking basis with security
over all of each of Synlait’s and the Synlait Guarantors’
present and after-acquired property. The Shareholder
Loan is to be subordinated to Synlait’s Senior Creditors.
The Shareholder Loan will not be subordinated to the
other creditors of Synlait and the Synlait Guarantors (in
particular, Bondholders and trade creditors). See the
section ‘Ranking and subordination’ below for
further detail.
The Shareholder Loan will be used to prepay Synlait’s
debt owed under the Bank Facilities Agreement, up to the
amount of the $130 million payment due on 15 July 2024.
Reason for the Shareholder Loan
As announced on 2 April 2024, the banks agreed to
short-term covenant relaxation of its existing facility
to provide time to reduce debt. However, the banks
require that $130 million of facilities they have advanced
are repaid on or before 15 July 2024. Synlait is not
forecasting to be able to do that without the entry into the
Shareholder Loan.
Synlait has been focused on a business recovery
programme which has three areas of focus – reducing
debt, accelerating volume growth, and optimising cost and
operational performance. However, it is the Board’s view
that cash flows from operations alone, particularly given
Synlait’s current financial performance, will not reduce
debt sufficiently to meet the payment due on 15 July 2024
or provide sufficient deleveraging to secure alternative or
amended banking facilities.
The Shareholder Loan has been offered to Synlait by
Bright Dairy International to ensure that the $130 million
payment due to the banks can be met on time and in
full. Synlait is in the process of seeking approval to the
Shareholder Loan from its banks. The banks’ agent has
confirmed that each of the banks have received the credit
approvals required to consent to the Shareholder Loan.
Synlait and the banks are in the process of negotiating the
documentation to give effect to the consent and satisfying
any applicable conditions. The Shareholder Loan will be
subordinated to the Senior Creditors and rank in priority of
payment behind the Senior Creditors (see Intercreditor /
Priority Terms below).
3. SHAREHOLDER
LOAN
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
10
Parties
BorrowerSynlait Milk Limited.
Synlait Guarantors Each guarantor in respect of the Bank Facilities being, as at the date of this notice of meeting:
(a) the Borrower;
(b) Synlait Milk Finance Limited;
(c) The New Zealand Dairy Company Limited;
(d) Eighty Nine Richard Pearse Drive Limited;
(e) Synlait Milk (Dunsandel Farms) Limited; and
(f) Dairyworks Limited.
Security All assets security provided by Synlait and each Synlait Guarantor, and second
ranking registered mortgages over all real property assets. The security will secure all
obligations of Synlait and the relevant Synlait Guarantors owing to the Lender.
LenderBright Dairy International Investment Limited
General Financing Structure
AmountNZ$130 million single draw term loan.
Loan Maturity Date12 months from the date of first drawdown (subject to the Extension Option below).
Extension OptionOn the date that is one month prior to the then current Loan Maturity Date, the Borrower
has the option to extend the Loan Maturity Date for a further twelve months by way of
board resolution of the Borrower and notification to the Lender, subject to:
• the shares of the Borrower remain listed;
• no administrator or liquidator has been appointed to the Borrower; and
• Bright Dairy Holding Limited holds not less than 39.01% of the shares in the
Borrower (prior to an equity raising being completed), or 51% (after an equity raising
has been completed), in each case other than as a result of a voluntary sale of
shares by Bright Dairy Holdings Limited.
Purpose
The Borrower may only use the proceeds of the Shareholder Loan to repay and/or
prepay (in whole or in part) its due and payable payment obligations under the Bank
Facilities Agreement.
Availability PeriodThree months from the date of the agreement entered into in respect of the
Shareholder Loan.
DrawdownThe Facility will be available in one drawdown only.
Pricing
Interest• 8% fixed payable every three months for the first twelve months; and
• if the Extension Option is exercised, the interest rate resets and will be equal to
quarterly BKBM plus 1.60%, payable quarterly,
in each case subject to Interest Deferral below.
Details of the lender
Bright Dairy International is a wholly-owned subsidiary of Bright Dairy & Food Co. Ltd, of which Bright Dairy Holding Limited
is an indirect wholly owned subsidiary. Bright Dairy Holding Limited owns and controls 39.01% of the shares in Synlait.
Key terms
The key terms of the Shareholder Loan documents are as follows:
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
11
Interest DeferralInterest is capitalised (rather than paid) if an “Interest Deferral Event” exists.
An Interest Deferral Event exists on an interest payment date if:
(a) the Borrower would not satisfy the solvency test (as defined in section 4 of the
Companies Act) immediately following such payment on the applicable payment date;
(b) a Senior Creditor has notified the Borrower in writing that a Senior Event of Default
has occurred (which is continuing) or an Obligor has notified a Senior Creditor in
writing that a Senior Event of Default has occurred (which is continuing);
(c) the Obligors have breached a financial covenant under the Bank Facilities
Agreement, or would be in breach of a financial covenant under the Bank Facilities
Agreement if the payment was made (if tested on that date);
(d) the banks have waived or pre-emptively waived a breach of any financial covenant
in the Bank Facilities Agreement, or agreed to an amendment of any financial
covenant with equivalent effect, or an Obligor would not remain in compliance with
such amended financial covenant immediately following such payment being made
(if tested on that date);
(e) any Senior Creditors have exercised any right of acceleration in respect of any
indebtedness owed to a Senior Creditor under the senior financing documents;
(f) the Obligors do not have sufficient funds to fund the payment in cash from Free
Cash Flow for the interest period to which that payment date relates; or
(g) any indebtedness to a Senior Creditor under the senior financing documents that
was scheduled to be paid in the interest period to which that payment date relates
has not been paid, or has been deferred.
Deferred interest capitalises and itself accrues interest. The Borrower is required to
catch-up on deferred interest on the next interest payment date where no interest
deferral event is continuing.
Free Cash Flow means, in respect of a period, the operating cash flow for that period less:
(a) the amount of capital expenditure incurred in that period; and
(b) the interest expense (being interest and line fees in respect of the Bank Facilities,
certain other senior debt documents, and the Bonds) or scheduled to be paid in
respect of that period.
Principal DeferralThe obligation on the Borrower to repay the principal amount on the Maturity Date is
deferred if a Principal Deferral Event exists. A Principal Deferral Event exists in respect
of any payment of principal on the relevant payment date if:
(a) the Borrower would not satisfy the solvency test (as defined in section 4 of the
Companies Act) immediately following such payment on the applicable payment date;
(b) the Obligors have breached a financial covenant in the Bank Facilities Agreement
and such breach has not been waived or remedied to the satisfaction of the
relevant Senior Creditors;
(c) a breach of a financial covenant in the Bank Facilities Agreement would occur as a
result of such payment; or
(d) the relevant Senior Creditors have waived or pre-emptively waived a breach of any
financial covenant in the Bank Facilities Agreement, or agreed to an amendment
of any financial covenant with equivalent effect, or an Obligor would not remain
in compliance with such amended financial covenant immediately following such
payment being made (if tested on that date).
In which case, the Borrower shall repay the principal in full on the first date on which
such Principal Deferral Event ceases to exist.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
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Mandatory PrepaymentsIn the event that a sale of Dairyworks (the Dairyworks Sale) is completed on or prior
to the date that is 12 months from the drawdown date, the Borrower will make a
prepayment equal to the net proceeds of sale on the date that is 12 months from the
drawdown date (subject to the Borrower obtaining the consent of the Senior Creditors
to such prepayment).
In the event that a Dairyworks Sale is completed after the date that is 12 months from
the drawdown date, the Borrower shall make a prepayment equal to the net proceeds
on the date that is 1 business day after completion of the Dairyworks Sale (subject to the
Borrower obtaining the consent of the Senior Creditors to such prepayment).
Material Terms
Representations Customary representations consistent with the representations in the Bank Facilities
Agreement, this includes representations on:
• corporate existence;
• no default;
• solvency; and
• no material adverse effect.
Negative UndertakingsCustomary negative undertakings consistent with the negative undertakings in the Bank
Facilities Agreement including restrictions on:
• disposals;
• acquisitions;
• borrowings;
• granting other security; and
• joint ventures,
in each case, subject to various exceptions, without the prior consent of the Lender.
General and Reporting
Undertakings
Customary general undertakings consistent with the general and reporting undertakings
in the Bank Facilities Agreement.
Financial CovenantsNone.
Events of DefaultCustomary events of default consistent with the events of default in the Bank Facilities
Agreement (and subject to certain materiality thresholds and grace periods), including:
• non-payment;
• breach of undertaking;
• breach of other obligations;
• breach of representation;
• cross-default (in respect of debt for at least $5 million, i.e., including the Bank
Facilities and the Bonds);
• material adverse effect;
• cessation of business;
• litigation;
• invalidity; and
• insolvency.
Event of ReviewAn Event of Review will occur if an Independent Director is appointed to the board of
the Borrower in circumstances where the Lender has not supported the appointment of
that person (provided that the parties agree that such Event of Review shall not occur
if the non-support would cause the Borrower to be in breach of the NZX Listing Rules).
The Event of Review only applies in the period up until the Lender or an Affiliate of the
Lender owns greater than 50% of the shares in the Borrower.
Triggers a 60 day negotiation period and if satisfactory amendments are not agreed
then the Lender has an ability to require repayment/cancellation on 60 days’ notice.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
13
Intercreditor / Priority Terms
SubordinationThe Shareholder Loan is to be fully subordinated to the Bank Facilities under the terms
of a deed of priority and subordination.
Restriction on paymentsNo payments can be made in respect of the Shareholder Loan without the consent
of the Senior Creditors, other than certain limited exceptions (including for scheduled
interest payments provided that no interest deferral condition exists).
Restriction on acceleration /
enforcement
Bright Dairy International is restricted from enforcing its security without the consent of
the Senior Creditors other than in certain limited situations, including where an event has
occurred under the Shareholder Loan documents that entitles Bright Dairy International to
enforce its security and the Senior Creditors have not enforced their security for a period
of 90 days from the date of notice to Senior Creditors of the default.
Drag alongCustomary drag along provisions are included in the deed of priority and subordination,
whereby, if the Senior Creditors consent to an asset disposal, or provide a waiver or
release, Bright Dairy International will be dragged by such consent, waiver or release.
Other
Ta xSynlait is required to gross up interest payments in respect of the Shareholder Loan
for any applicable non-resident withholding tax. Specifically, where tax is required
to be deducted or withheld from an interest payment, Synlait must pay an additional
amount to the Lender so that, after the relevant deduction or withholding is made, the
Lender receives a net amount equal to the payment that would have been received if
no deduction or withholding had been required. Synlait will account to the IRD for any
tax that is withheld or deducted from an interest payment promptly and will provide
documentation evidencing that payment to the Lender.
If Synlait makes an additional payment to the Lender to compensate the Lender for
tax incurred in connection with the Shareholder Loan, and the Lender subsequently
determines that the payment gave rise to a tax credit or other benefit that has been
utilised for the Lender’s benefit, then the Lender will pay an amount equal to the value of
that tax credit or benefit to Synlait.
Where permitted by law, Synlait may choose to pay approved issuer levy, so that the
rate of non-resident withholding tax on interest is reduced to 0%. Synlait is not permitted
to deduct the amount of the approved issuer levy from interest payments under the
Shareholder Loan. As at the date of the agreement in respect of the Shareholder Loan,
the parties agree that the conditions for paying approved issuer levy are met, and Synlait
may accordingly choose to do so.
Synlait must indemnify the Lender for any taxes incurred in connection with the
Shareholder Loan, other than taxes on net income. Synlait will also indemnify the Lender
for any interest or penalties arising from a late payment of tax, if that late payment is
attributable to a default of Synlait and provided that the tax is paid promptly on the
Lender becoming aware of the tax obligation.
Governing Law and
Jurisdiction
Governing Law: New Zealand law.
Jurisdiction: Non-exclusive jurisdiction of New Zealand courts.
LanguageEnglish.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
14
Tax treatment of the Shareholder Loan
Provided that the Lender is not “associated” with Synlait
(which should be the case, as at the date of the agreement
for the Shareholder Loan):
• Interest paid to the Lender under the Shareholder
Loan will be subject to non-resident withholding
tax (NRWT). The rate of NRWT should be 10%
under the New Zealand/Hong Kong double tax
agreement, provided that the Lender is eligible to
benefit under that agreement.
• However, subject to certain criteria being
satisfied, Synlait should be able to pay 2%
“approved issuer levy” (AIL) on interest under the
Shareholder Loan, instead of NRWT.
If the Lender becomes associated with Synlait for tax
purposes (which will be the case if Bright Dairy Holding
Limited increases its shareholding so that it has a 50% or
greater voting interest in Synlait), then it will no longer be
possible for Synlait to pay AIL instead of NRWT.
Synlait will be required to bear the cost of any AIL paid
on interest under the Shareholder Loan. Synlait will also
be required to gross-up interest payments on account of
applicable NRWT.
Synlait’s deduction for interest under the Shareholder
Loan will be subject to New Zealand’s transfer pricing
rules, which (broadly) deny a tax deduction for interest that
exceed an “arm’s length amount”. The excess interest may
be recharacterized as a dividend for tax purposes.
Ranking and subordination
In accordance with the terms of the deed of priority and
subordination (see above), the obligations of Synlait and
the Synlait Guarantors in respect of the Shareholder
Loan are to be subordinated to the obligations of Synlait
and the Synlait Guarantors to the Senior Creditors. The
security granted in favour of Bright Dairy International is
to be granted on a second ranking basis, ranking behind
the security granted by Synlait and the Synlait Guarantors
in favour of the Security Agent (on behalf of the Senior
Creditors).
However, the obligations of Synlait and the Synlait
Guarantors will not be subordinated to the other creditors
of Synlait and the Synlait Guarantors (in particular,
unsecured trade creditors and Bondholders). In addition,
as secured obligations of Synlait and the Synlait
Guarantors, following repayment in full of obligations to
the Senior Creditors, Bright Dairy International will have
priority over Synlait’s unsecured creditors (including
the Bonds) and the unsecured creditors of the Synlait
Guarantors in respect of any proceeds from the realisation
of the security held by Bright Dairy International.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
15
Set out below is a simplified table that illustrates the ranking of the Shareholder Loan with respect to the other liabilities
of Synlait and the Synlait Guarantors.
HIGHER RANKING /
EARLIER PRIORITY
Ranking on liquidation of SynlaitType of liability / equity
Liabilities that rank in priority to the
Shareholder Loan
Liabilities preferred by law (e.g., Inland
Revenue)
1
Bank Facilities
Other borrowings secured over assets of
Synlait
2
LOWER RANKING /
LATER PRIORITY
Shareholder LoanShareholder Loan
Liabilities that rank below the
Shareholder Loan
Bonds
Other unsubordinated liabilities (e.g. trade
and general creditors
3
, among others)
Subordinated liabilities (if any)
Equity
4
Shares, reserves and retained earnings
Notes to diagram:
1. Liabilities that rank in priority to the Bank Facilities 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.
2. Such amount includes the Obligors’ commodity, foreign exchange and interest rate derivatives. These are secured under the security arrangements
applicable to the Bank Facilities Agreement.
3. 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 the
Shareholder Loan in the event of a liquidation.
In a liquidation scenario where Senior Creditors do not recover all amounts owing under the senior security interests and/or Bright Dairy International does
not recover all amounts owing to it under the second ranking security interests held for its benefit:
• the Senior Creditors (for any shortfall);
• Bright Dairy International (for any shortfall);
• the Bondholders; and
• trade and general creditors (who do not have the priority or preference referred to in the paragraph above),
will rank equally. However, under their terms, the Bonds are subordinated to claims of the following creditors:
• the banks in respect of all amounts due in relation to the Bank Facilities 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.
In that event, the recovery of trade and general creditors and Bright Dairy International may be greater than the Bondholders’ recovery because the
Bonds are subordinated to the creditors referred to above.
In the event of an insolvency of Synlait, Bright Dairy International as the lender under the Shareholder Loan would be paid amounts due to it (to the
extent any surplus proceeds were available to be paid) ahead of any payment to Bright Dairy Holding Limited in respect of its shares in Synlait.
4. 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).
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
16
Bank Facilities and Bonds
Bank Facilities
Synlait’s Bank Facilities are in place with its banks, being
as at the date of this Notice of Meeting, ANZ New Zealand
Bank Limited, Bank of China (New Zealand) Limited, China
Construction Bank Corporation New Zealand Branch, The
Hongkong and Shanghai Banking Corporation Limited and
Cooperatieve Rabobank U.A., New Zealand Branch. The
Bank Facilities comprise two main facilities, with various
tranches of lending under the revolving credit facility.
They can be summarised as follows:
A. Revolving credit facilities of $230 million. These
facilities also step down over time with maturity dates
between 31 July 2024 and 1 October 2025. These are:
• $50 million limit step down on 31 July 2024
• $46 million maturity on 31 July 2024
• $50 million maturity on 1 October 2024
• $84 million maturity on 1 October 2025
B. Working capital facility of $270 million, maturing 1
October 2024. This facility is a seasonal facility where
the facility limit changes at several times during the
term of the facility.
• $50 million limit step down on 27 June 2024 for
the WCF
• $58 million limit step down on 31 July 2024 for WCF
As announced on 2 April 2024 at the half year result, the
banks agreed to short-term covenant relaxation in the Bank
Facilities to provide Synlait time to reduce debt. Since that
date Synlait has requested waivers in respect of both its
leverage ratios and interest coverage ratio and a deferral of
the maturity/limit step downs of relevant facilities through
to the end of July 2024. The banks’ agent has confirmed
that each of the banks have received credit approval to
the covenant waivers and the deferral of the maturity/
limit step downs in June and July until such time that
Synlait’s planned equity raise is completed (as to which,
see below). The approval is subject to the addition of a
covenant to achieve minimum adjusted EBITDA for FY2024
of $45 million. Synlait and the banks are in the process
of negotiating the documentation for these waivers and
satisfying any applicable conditions. If documentation
for the deferral of the step down of relevant facility limits
and extension of relevant maturity dates due to occur on
27 June 2024 or 31 July 2024 is not able to be agreed,
Synlait’s drawn debt may exceed its permitted levels and
therefore be in default under the Bank Facilities on 27
June 2024 and/or 31 July 2024. If documentation of the
ratio waivers is not agreed prior to 31 July 2024, Synlait will
likely be in default under the Bank Facilities on that date.
Some of these amounts will be affected by the $130 million
payment to be made on 15 July 2024. In particular, the
Shareholder Loan advance will be applied on a pro rata
basis between the drawn balances of the revolving credit
facility and the working capital facility.
Synlait has five key bank covenants in place under its Bank
Facilities Agreement. For the remainder of FY24, these are:
1. Total shareholder funds of no less than $400 million at
all times.
2. Working capital ratio of no less than 1.5x at all times.
3. Interest coverage ratio of no less than 1.75x for the 31
July 2024 reporting date.
4. Total leverage ratio as at 31 July 2024 of no greater
than 3.5x.
5. Senior leverage ratio as at 31 July 2024 no greater
than 2.25x.
On 4 June 2024 Synlait announced that Synlait is now
forecasting it is unlikely to meet three of its current banking
covenants as at 31 July 2024, the interest coverage ratio,
the total leverage ratio, and senior leverage ratio. This
reflects the timing of Synlait’s deleveraging and further
weakening in its financial performance. Synlait has
requested waivers in respect of both its leverage ratios and
interest coverage ratio and a delay in the maturity/limit step
downs of relevant facilities through to end of July 2024.
See above regarding the status of that request.
In connection with the proposed equity raising, Synlait
is also proposing to refinance its Bank Facilities and is
underway with work on this. No commitments have yet
been given by any banks and the make-up of the bank
syndicate is yet to be confirmed.
Synlait also has uncommitted receivables financing
arrangements in place with Rabobank and ANZ and a
$10 million on-demand bilateral facility with ANZ. The
receivables financing arrangements are uncommitted
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
17
facilities and the receivables financiers have the right to
stop purchases at any time.
Bonds
The $180 million subordinated bonds mature on 17
December 2024 if not redeemed prior.
Bondholders may choose to redeem their Bonds before the
maturity date if a “Change of Control Event” occurs (subject
to no “Interest Deferral Condition” existing or resulting from
the redemption (the “Interest Deferral Condition” in respect
of the Bonds is different to the equivalent provision in the
Shareholder Loan – it includes circumstances where an event
of default has occurred under the Bank Facility)). A Change
of Control Event includes if 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. This could occur at the time of the equity raising
described on page 7 of the Notice of Meeting depending on
the structure finally adopted for that equity raising.
Synlait expects that bondholders may wish to exercise the
redemption right. Accordingly, as part of the refinancing of
Synlait’s Bank Facilities, Synlait will be seeking amended
facilities that, following the completion of the equity raising,
will be available to be drawn to meet Synlait’s expected
working capital and other corporate requirements as well
as allowing for the repayment of the Bonds (whether upon
an early redemption triggered by the change of control or
on the maturity date).
Further information about the refinancing will be provided
once arrangements have been agreed with the banks, and
further information about the impact of any equity raising
on the Bonds will be set out in the Notice of Meeting in
respect of the equity raising approvals which is intended to
be circulated in August 2024.
Key risks
Synlait considers that the key risks related to the
Shareholder Loan are as follows:
(i) Conditions to the Shareholder Loan may not be
satisfied
The ability to draw down under the Shareholder
Loan is subject to the fulfilment of certain conditions,
including the approval of the resolution at the Special
Shareholders’ Meeting. If any of the conditions are not
met or waived, including if shareholder approval is not
obtained, the monies cannot be drawn.
Bright Dairy Holding Limited is not able to vote in
favour of the Shareholder Loan. This means the voting
intentions of The a2 Milk Company Limited, as the holder
of 19.8% of the shares (which equates to approximately
33% of the votes eligible to be cast on the resolution),
will be influential in determining the outcome of the
resolution to approve the Shareholder Loan.
Whilst as at the date of this Notice of Meeting Synlait
and The a2 Milk Company Limited have engaged
in discussions, The a2 Milk Company Limited has
not determined how it will vote on the resolution. If
Synlait is advised of a change of status of The a2 Milk
Company Limited’s voting intentions, it will update
shareholders by way of market announcement.
The ability to draw down under the Shareholder Loan
is critical to Synlait’s ability to meet its obligation to pay
the $130 million payment to its banks on 15 July 2024.
If shareholders do not approve the resolution, Synlait
will not be able to meet that payment obligation to its
banks. If that payment is not made and the banks do
not agree to alternative arrangements, the Board’s
view is that Synlait will need to cease trading or initiate
a formal insolvency process.
Other conditions to drawing include an internal
resolution of Bright Dairy & Food Co., Ltd and evidence
that the Shareholder Loan has been approved by the
State-owned Assets Supervision and Administration
Commission of Shanghai (SASAC) or any institution
authorised by it. Each of these conditions are outside
the control of Synlait. It is possible that either of these
approvals may not be received, or if received, may be
received after the payment is due to the banks on 15
July. Either would mean that Synlait would be unable
to make the payment due on that date and may end
up defaulting on this payment obligation to its banks. If
that payment is not made and the banks do not agree
to alternative arrangements, the Board’s view is that
Synlait will need to cease trading or initiate a formal
insolvency process.
(ii) The Shareholder Loan cannot be repaid when due
If Synlait is unable to repay or refinance the
Shareholder Loan on the Maturity Date, Synlait may
need to cease trading or initiate a formal insolvency
process. To mitigate this risk, Synlait has agreed with
Bright Dairy International that if the Borrower would
not satisfy the solvency test (as defined in section 4
of the Companies Act) immediately following such
payment on the applicable Maturity Date, the Maturity
Date will be deferred. See “Principal Deferral” in
section three (Shareholder Loan) for more information.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
18
(iii) Synlait may default under the Shareholder Loan
If Synlait defaults under the Shareholder Loan (such as
by breaching an undertaking which is not remedied in
any applicable grace period, or if an insolvency occurs
with respect to Synlait), Bright Dairy International
may be entitled to accelerate the loan and demand
repayment. The rights that Bright Dairy International
has to do this will be subject to the Deed of Priority
that it has entered into with the banks. In particular,
Bright Dairy International is restricted from enforcing
its security without the consent of the Senior Creditors
other than in certain limited situations, including where
an event has occurred under the Shareholder Loan
documents that entitles Bright Dairy International to
enforce its security and the Senior Creditors have not
enforced their security for a period of 90 days from the
date of notice to Senior Creditors of the default.
Default under the Shareholder Loan will trigger a
cross-default under the Bank Facilities allowing the
banks to enforce their security.
(iv) Synlait is reliant upon the support of its banks
Synlait is currently seeking amendments and waivers
under its Bank Facilities. Synlait also is proposing to
refinance its Bank Facilities concurrently with an equity
raising. If the banks do not continue to support Synlait
through these amendment, waiver and refinancing
processes, Synlait considers that it will be very difficult
to find alternative funding in order to repay the Bank
Facilities if the banks demand repayment. In that
event, Synlait may need to cease trading or initiate
a formal insolvency process if alternative funding
sources cannot be obtained.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
19
QuestionAnswerMore Information
Shareholder Loan
What am I being asked to consider?You are being asked to consider whether
you support the entry into the Shareholder
Loan.
Read this Notice
of Meeting and the
Independent Report in the
Appendix and seek advice
if you have any questions.
What is the Shareholder Loan?A loan facility of up to $130 million with
Bright Dairy International.
See section three
(Shareholder Loan) for
more detail.
What are the terms of the Shareholder Loan?The key terms of the loan are set out in
section three (Shareholder Loan)
See section three
(Shareholder Loan) for
more detail.
What do the Independent Directors
recommend?
The Independent Directors fully support
the entry into the Shareholder Loan and
unanimously recommend that shareholders
vote in favour of the resolution. The directors
appointed by Bright have abstained from
making a recommendation.
See section three
(Shareholder Loan) for
more detail.
Is there an independent appraiser’s report?Yes. The Board commissioned an
independent appraisal report from
Northington Partners.
See the Independent
Report in the Appendix for
more detail.
What is Northington Partners’ conclusion?Overall, the Independent Report concludes
that the terms and conditions (including
proposed consideration) of the Shareholder
Loan are fair to all shareholders not
associated with Bright.
See the Independent
Report in the Appendix for
more detail.
What is required for the Shareholder Loan to
become effective?
Shareholders other than Bright must approve
the entry into of the Shareholder Loan by way
of an ordinary resolution (greater than 50% of
those shares entitled to vote and voting). The
conditions to the Shareholder Loan must also
be satisfied.
See the Independent
Report in the Appendix for
more detail.
When will the Shareholder Loan be drawn
and what will the monies be used for?
Synlait will draw down the Shareholder Loan
in full to meet the $130 million payment due
to its banks on 15 July 2024, (assuming all
conditions have been satisfied).
See the Independent
Report in the Appendix for
more detail.
Process
Where will the Special Shareholders’
Meeting be held?
The Special Shareholders’ Meeting will be
held at 2.00pm (NZST) on Thursday, 11 July
2024 at Synlait’s Dunsandel facility and
online.
See section five (Notice of
Meeting) for more detail.
4. FREQUENTLY ASKED
QUESTIONS
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
20
QuestionAnswerMore Information
Is anything else being considered at the
Special Shareholders’ Meeting?
No. Other than the resolution, there will be
no matters for shareholders to consider or
vote on. There will be an opportunity for
shareholders to ask questions at the Special
Shareholders’ Meeting. Shareholders can
also submit questions prior to the Special
Shareholders’ Meeting.
See section five (Notice of
Meeting) for more detail.
When will the result of the Special
Shareholders’ Meeting be known?
As soon as the results are available, Synlait
will announce them publicly via the NZX and
ASX, and on the investor section of Synlait’s
website.
Publicly available on
Synlait’s listings on the
NZX, ASX and the Synlait
website.
How do I vote if I am not able to attend the
Special Shareholders’ Meeting?
You can exercise your right to vote at the
Special Shareholders’ Meeting in two ways.
Namely, (a) by being present and voting in
person or online; or (b) by appointing a proxy
to attend and vote in your place. A Voting/
Proxy Form is enclosed with this Notice of
Meeting.
See section five (Notice of
Meeting) and the Voting/
Proxy Form accompanying
this Notice of Meeting for
more detail.
How do I vote by proxy?If you wish to vote by proxy, you must
complete the Voting/Proxy Form and ensure
it is received by no later than 2.00pm (NZST)
on Tuesday, 9 July 2024. You can also lodge
your proxy appointment online.
See section five (Notice of
Meeting) and the Voting/
Proxy Form accompanying
this Notice of Meeting for
more detail.
Can I submit a postal vote?No. Postal votes are not permitted. See section five (Notice of
Meeting) and the Voting/
Proxy Form accompanying
this Notice of Meeting for
more detail.
Why is my vote important?The Shareholder Loan requires the approval
of an ordinary (greater than 50% of those
shares entitled to vote and voting) resolution.
See the section headed
"Importance of the
resolution to the future
of the company" in the
Chair's letter
Post resolution
What happens if the proposed resolution is
not approved?
The Shareholder Loan will not be available
to allow Synlait to repay $130 million to the
banks on 15 July 2024.
If that payment is not made and the banks
do not agree to alternative arrangements,
the Board’s view is that Synlait will need to
cease trading or initiate a formal insolvency
process.
See section three
(Shareholder Loan) for
more detail.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
21
The Special Shareholders’ Meeting of Synlait will be held at:
• Location: Synlait’s Dunsandel facility, located at
1028 Heslerton Road, RD13 Rakaia, Canterbury, New
Zealand, and online via the Computershare meeting
platform at: www.meetnow.global/nz
• Date and time: Thursday, 11 July 2024 at
2.00pm (NZST)
The Special Shareholders’ Meeting will be a hybrid
meeting to ensure that it is accessible and that
shareholders who are not able to attend in person
can still participate. Online attendance to the Special
Shareholders’ Meeting is via the Computershare meeting
platform at: www.meetnow.global/nz
To participate online you will need your shareholder
number for verification purposes – your shareholder
number can be found on your Voting/Proxy Form.
The business of the Special Shareholders’ Meeting will be
to consider and, if thought appropriate, pass the ordinary
resolution set out below.
Further information relating to the resolution is set out
in the explanatory note accompanying this Notice of
Meeting. Please read and consider the resolution together
with the notes.
Resolution
To consider and, if thought fit, pass the following
resolution:
That the Shareholder Loan, as described in the Notice of
Meeting dated 25 June 2024, be approved under and for
the purposes of NZX Listing Rules 5.1.1(b) and 5.2.1.
This resolution requires approval as an ordinary resolution,
including as a major transaction for the purposes of NZX
Listing Rule 5.1.1(b), and as a Material Transaction with a
Related Party for the purposes of NZX Listing Rule 5.2.1.
The Independent Directors support fully the Shareholder
Loan and unanimously recommend that shareholders vote
in favour of the resolution. The directors appointed by
Bright have abstained from making a recommendation.
Conclusion from Independent Report
Synlait has commissioned Northington Partners, as
independent appraiser, to prepare the Independent Report.
On page 27, at Section 5.7 of the Independent Report
under the heading “Summary of our Assessment of the
Shareholder Loan”, Northington Partners concludes
that, in its opinion, after having regard to all relevant
factors:
• the Shareholder Loan pricing and terms are fair to
shareholders not associated with Bright;
• the terms are likely to be more favourable than what
would be available on arms-length commercial terms
from an independent third- party lender;
• the Shareholder Loan is now the only option
available to Synlait to repay the $130 million of
bank debt due on 15 July 2024, and thereby avoid
the significant consequences that would otherwise
arise; and
• the Shareholder Loan provides Synlait with the time
needed to progress Synlait’s other deleveraging
plans, including the proposed equity raising and bank
refinancing, and that shareholders not associated with
Bright will have an opportunity to reconsider their
options at that time.
These are only some of the conclusions reached in the
Independent Report, and the Independent Directors
recommend that you carefully read the Independent
Report attached as the Appendix in full.
How to cast your vote
The Voting/Proxy Form included with this Notice of
Meeting allows you, or your proxy, to vote either for or
against, or abstain from, the resolution.
You may cast your vote in one of two ways:
1. Attend the special meeting in person or online
and vote
You can attend the meeting in person or via the online
platform to exercise your vote.
5. NOTICE OF SPECIAL
SHAREHOLDERS’ MEETING
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
22
2. Proxy appointment
You can complete the enclosed Voting/Proxy Form and
return it in accordance with the instruction on the Voting/
Proxy Form, so that in each case, your vote is received
by Computershare Investor Services Limited no later than
2.00pm (NZST) on Tuesday, 9 July 2024.
Shareholders can elect to lodge their proxy appointment
online at www.investorvote.co.nz. Shareholders can either
visit the website or use the QR code printed on the Voting/
Proxy Form.
To vote online you must enter your CSN/Securityholder
number, post code/Country of Residence and the secure
access Control Number that is located on the front of
your Voting/Proxy Form. To appoint a proxy, select your
preferred voting method and follow the prompts online.
You may appoint the Chair of the Special Shareholders’
Meeting as your proxy if you wish. If you select a proxy
to vote on your behalf (including the Chair of the Special
Shareholders’ Meeting) and you confer on the proxy a
discretion on the Voting/Proxy Form, you acknowledge
that the proxy may exercise your right to vote at his or her
discretion and may vote as he or she thinks fit or abstain
from voting.
A proxy does not need to be a shareholder.
Shareholder questions
Shareholders may submit written questions to be considered
at the Special Shareholders’ Meeting. Prior to the Special
Shareholders’ Meeting, written questions can be submitted
online at www.investorvote.co.nz (after submitting your vote
online) or by using the Voting/Proxy Form.
During the Special Shareholders’ Meeting, shareholders
participating online can ask questions by clicking on the ‘Ask
a question’ box on the online portal.
Synlait reserves the right not to address any questions
that it is not required to address or, in the Board’s opinion,
are not reasonable to address in the context of the
Special Shareholders’ Meeting.
Webcast
If you are unable to attend the meeting, a full replay of the
webcast will be available and can be accessed online at
the Synlait Investor Centre: www.synlait.com/investors/
Procedural notes
Voting entitlements for the Special Shareholders’ Meeting will
be determined as at 5.00pm (NZST) on Tuesday, 9 July 2024.
Shareholders at that time will be the only persons entitled to
vote at the Special Shareholders’ Meeting and only the shares
registered in those Shareholders’ names at that time may be
voted at the Special Shareholders’ Meeting.
The resolution will be voted on by way of a poll, in
accordance with NZX Listing Rule 6.1.1. Results of the
voting will be available after the conclusion of the
Special Shareholders’ Meeting and will be notified on the
announcement platforms of NZX and ASX, and on the
Synlait website’s Investor section.
By order of the Board
Yours sincerely
George Adams
Chair
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
23
NZX Listing Rules
Major transactions
NZX Listing Rule 5.1.1 provides that Synlait must not
enter into a transaction, or a series of linked or related
transactions, to sell assets where the transaction (or
transactions):
(a) would significantly change, either directly or indirectly,
the nature of the business of Synlait; or
(b) involves (or involve) a “Gross Value” that exceeds 50%
of the “Average Market Capitalisation” (as those terms
are defined in the NZX Listing Rules) of Synlait and its
subsidiaries,
in each case except with the prior approval of an ordinary
resolution of Synlait (or a special resolution if section 129
of the Companies Act also applies).
As at the close of business on 24 June 2024 (which
was the last NZX Main Board trading day prior to the
date of this Notice of Meeting), Synlait’s average market
capitalisation was approximately $60 million. The gross
value of the Shareholder Loan is approximately $130
million, which exceeds 50% of Synlait’s average market
capitalisation.
As a result, approval is being sought for the Shareholder
Loan under the second limb of NZX Listing Rule 5.1.1.
The Shareholder Loan does not require approval as a
“major transaction” of Synlait under section 129 of the
Companies Act.
Material Transactions with a Related Party
NZX Listing Rule 5.2.1 provides that Synlait must not enter
into a Material Transaction if a Related Party is, or is likely
to, become:
(a) a direct party to the Material Transaction; or
(b) a beneficiary or a guarantee or other transaction
which is a Material Transaction,
unless that Material Transaction is approved by an ordinary
resolution of Synlait or conditional on such approval.
Under the NZX Listing Rules, a Material Transaction
includes a transaction or series of transactions whereby
Synlait borrows, lends, pays or receives money, or incurs
an obligation of an amount above 10% of its Average
Market Capitalisation (in the case of debt securities, only
the nominal amount of debt securities being issued to any
Related Party or any employees are taken into account).
As at the close of business on 24 June 2024 (which
was the last NZX Main Board trading day prior to the
date of this Notice of Meeting), Synlait’s average market
capitalisation was approximately $60 million. The
nominal amount of the Shareholder Loan being is $130
million, which exceeds 10% of Synlait’s average market
capitalisation. Bright Dairy International as a related
company of Bright Dairy Holding Limited is a Related Party
of Synlait. As a result, the Shareholder Loan will constitute
the entry by Synlait into a Material Transaction with a
Related Party.
Accordingly, approval is being sought for the Shareholder
Loan under NZX Listing Rule 5.2.1.
Resolution required
The resolution is being proposed as an ordinary resolution
to satisfy the requirements of the NZX Listing Rules. An
ordinary resolution is required to be passed by a simple
majority of the votes of shareholders entitled to vote and
voting on the resolution.
All shareholders will be entitled to vote on the resolution,
provided that Bright Dairy Holding Limited as an
“Associated Person” of Bright Dairy International (the
lender under the Shareholder Loan) will not be permitted
to vote in favour of the resolution under NZX Listing Rule
5.2.1 to approve the entry into Shareholder Loan as a
Material Transaction with a Related Party.
6. EXPLANATORY
NOTES
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
24
The meaning of terms set out in this Notice of Meeting are set out below:
ASXASX Limited and, where the context requires, the Australian Securities Exchange which
it operates.
Bank Facilitiesthe facilities made available by Synlait’s banks under the Bank Facilities Agreement.
Bank Facilities Agreementthe Loan Facilities Agreement originally dated 26 June 2013 as amended from time to
time between, among others, Synlait and the banks.
banksas at the date of this document, ANZ New Zealand Bank Limited, Bank of China (New
Zealand) Limited, China Construction Bank Corporation New Zealand Branch, The
Hongkong and Shanghai Banking Corporation Limited and Cooperatieve Rabobank
U.A., New Zealand Branch.
Bondholdera person whose name is entered in the register in respect of the Bonds as a holder of a
Bond.
Boardthe board of directors of Synlait Milk Limited.
Bondsthe $180 million subordinated bonds issued by Synlait with the ticker SML010.
BrightBright Dairy Holding Limited and/or its controlling entities, as the context requires
Bright Dairy InternationalBright Dairy International Investment Limited, the company that is the lender under the
Shareholder Loan and a related company of Synlait’s largest shareholder, Bright Dairy
Holding Limited.
Companies Act the Companies Act 1993 (New Zealand).
DairyworksDairyworks Limited.
Directora director of Synlait.
Independent Directora Director who is an “Independent Director”, as such term is defined in the NZX Listing
Rules. The current Independent Directors are George Adams (Chair), Paul McGilvary and
Paul Washer.
Independent Reportthe independent appraisal report prepared by Northington Partners that is included as
the Appendix to this Notice of Meeting.
Notice of Meetingthis document together with its Appendix.
Northington PartnersNorthington Partners Limited.
NZ RegCoNZ Regulation Limited.
NZX NZX Limited.
NZX Listing Rulesthe listing rules of the NZX Main Board and Debt Market operated by NZX.
NZX Main Boardthe main board equity security market operated by NZX.
ObligorsSynlait and the Guarantors.
resolutionthe resolution to be put to shareholders at the Special Shareholders’ Meeting, as
described in section five (Notice of Special Shareholders’ Meeting).
Senior Creditorsthe beneficiaries under the Synlait security trust deed being the banks (in various
capacities) and Bank of New Zealand as hedge counterparty.
7. GLOSSARY
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
25
Senior Event of Defaultan “Event of Default” as defined in the Senior Facility Agreement and includes delivery
of a “Cancellation Notice” under clause 16.2 (Consequences of an Event of Review)
of the Senior Facility Agreement or the occurrence of any “event of default” (however
described) under any “Finance Document” as defined in the Senior Facilities Agreement
(other than the Senior Facilities Agreement) and any Hedging Agreement between a
Debtor and Bank of New Zealand, or any event of review, illegality event or impossibility
event (however described) has occurred under any such document that has resulted in
cancellation (however described) of such document.
sharea fully paid ordinary share in the capital of Synlait.
shareholdereach person registered in the share register of Synlait as a holder of Shares.
Shareholder Loanthe loan of up to $130 million to be advanced to Synlait by Bright Dairy International,
and associated security and priority arrangements, if the resolution is approved and all
other conditions to drawdown are satisfied.
Shareholder Loan documentsthe facility agreement and associated security documents entered into by Synlait, Bright
Dairy International and the Synlait Guarantors to give effect to the Shareholder Loan.
Special Shareholders’
Meeting
the special shareholders’ meeting of Synlait (and includes any adjournment of that
meeting).
SynlaitSynlait Milk Limited, a company incorporated in New Zealand under the Companies Act,
and includes entities directly or indirectly wholly-owned by Synlait.
Synlait Guarantors(a) Synlait Milk Finance Limited;
(b) The New Zealand Dairy Company Limited;
(c) Eighty Nine Richard Pearse Drive Limited;
(d) Synlait Milk (Dunsandel Farms) Limited; and
(e) Dairyworks Limited.
Takeovers Codethe Takeovers Code set out in the schedule to the Takeovers Regulations 2000.
Voting/Proxy Formthe voting and proxy form accompanying this Notice of Meeting.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
26
APPENDIX:
INDEPENDENT REPORT
Synlait Milk Limited
Independent Appraisal Report
Prepared in Relation to a Proposed Shareholder Loan from a Related Company
of Bright Dairy Holding Limited
25 June 2024
Synlait Milk Limited – Independent Appraisal Report Page | 2
Table of Contents
Table of Contents
1.0 Executive Summary ................................................................................................................................. 4
1.1. Introduction ............................................................................................................................................ 4
1.2. Summary Shareholder Loan Terms ........................................................................................................ 4
1.3. Summary of our Assessment of the Shareholder Loan for Synlait Shareholders ..................................... 5
1.4. Conclusion Regarding the Fairness of the Shareholder Loan ................................................................. 6
2.0 Scope of the Report ................................................................................................................................. 7
2.1. Regulatory Requirements ....................................................................................................................... 7
2.2. Basis of Assessment and Evaluation ...................................................................................................... 7
3.0 Profile of Synlait ....................................................................................................................................... 9
3.1. Overview of the Company ...................................................................................................................... 9
3.2. Background ............................................................................................................................................ 9
3.3. Significant Historical Events ................................................................................................................. 11
3.4. Channels and Products ........................................................................................................................ 13
3.5. Milk Supply ........................................................................................................................................... 13
3.6. Customer Relationships ....................................................................................................................... 14
3.7. Financial Overview ............................................................................................................................... 15
3.8. Ownership and Share Price Performance ............................................................................................. 17
3.9. Recapitalisation Plan Summary ............................................................................................................ 18
4.0 Overview of the Shareholder Loan and Bank Facilities ....................................................................... 20
4.1. Shareholder Loan Key Terms ............................................................................................................... 20
4.2. Bank Facility Terms .............................................................................................................................. 21
5.0 Evaluation of the Fairness of the Shareholder Loan ............................................................................ 23
5.1. Shareholder Loan Pricing ..................................................................................................................... 23
5.2. Other Key Terms of the Shareholder Loan ........................................................................................... 24
5.3. Immediate Financial Implications of the Shareholder Loan ................................................................... 25
5.4. Potential Future Financial Implications ................................................................................................. 26
5.5. Voting Outcomes of the Shareholder Meeting ...................................................................................... 26
5.6. Potential Consequences of the Shareholder Loan Not Being Approved ................................................ 26
5.7. Summary of our Assessment of the Shareholder Loan ......................................................................... 27
Appendix 1. Sources of Information Used in this Report ..................................................................... 28
Appendix 2. Declarations, Qualifications and Consents....................................................................... 29
Synlait Milk Limited – Independent Appraisal Report Page | 3
Abbreviations and Definitions
Abbreviations and Definitions
a2MC The a2 Milk Company
AMF Anhydrous Milk Fat
Appraisal Report This report prepared by Northington Partners
Bonds
The $180 million of unsecured subordinated fixed rate bonds issued by Synlait and
listed on NZDX with a maturity date of 17 December 2024
Bright The 39% majority shareholder in Synlait, Bright Dairy Holding Limited
Bright Dairy International Bright Dairy International Investment Limited a wholly-owned subsidiary of Bright Dairy
& Food Co. Ltd, the sole shareholder of Bright Dairy Holding Limited
CNCA Certification and Accreditation Administration of the Peoples Republic of China
Company Synlait Milk Limited
Dairyworks Dairyworks Limited
Dunsandel Synlait’s manufacturing site located in Dunsandel, Canterbury
EBITDA Earnings before interest, tax, depreciation, and amortisation (and impairments)
Equity Raising The proposed equity capital raising by Synlait
ERP Enterprise Resource Planning
Fletcher Building Fletcher Building Limited
FSSI Foodstuffs South Island
FY In relation to Synlait, financial year ending 31 July
Infratil Infratil Limited
IPO Initial public offering
MT Metric Tonne
Northington Partners Northington Partners Limited
Non-associated Shareholders Shareholders of Synlait not associated with Bright
Notice of Special Meeting The notice of special meeting of Synlait shareholders and accompanying material in
relation to the Shareholder Loan
NPMSA Nutritional Powders Manufacturing and Supply Agreement
NZDX The listed debt market operated by NZX
NZX NZX Limited
OIO Overseas Investment Office
Pokeno Synlait’s manufacturing site located in Pokeno, Waikato
SAMR State Administration for Market Regulation
Shareholder Loan The $130 million loan facility with Bright Dairy International Investment Limited
SMD Special Milks Dryer
Synlait Synlait Milk Limited and its subsidiaries.
Synlait Milk Limited – Independent Appraisal Report Page | 4
Executive Summary
1.0 Executive Summary
1.1. Introduction
Synlait Milk Limited (“Synlait” or “Company”) is a dairy and nutrition processor which manufactures
infant formula, milk-powder based products, liquid milk and other advanced nutritional products. The
Company’s shares are held by approximately 6,500 shareholders with a primary listing on the NZX
Main Board (and a secondary listing on the ASX). The Company also has $180 million of
subordinated bonds listed on the NZDX (“Bonds”) maturing on 17 December 2024.
After a period of rapid investment to support geographic, product and customer diversification, Synlait
has incurred significant levels of increased debt. Over the last few years, the Company has also
experienced considerable earnings volatility with compressed margins for its key nutritional products.
This has resulted in debt levels exceeding $580 million as at 31 January 2024 relative to current
EBITDA earnings guidance for the 12 months to 31 July 2024 of $45 million - $60 million. Even if
earnings could be improved in the short term, the current debt level is unsustainable.
In order to meet its short-term debt obligations and provide a more sustainable financial position,
Synlait commenced a recapitalisation plan in 2023. Following the completion of a comprehensive
strategic review, a wide range of deleveraging options have been considered and the Company now
intends to proceed with a two-stage plan:
Stage 1 of the plan involves a $130m shareholder loan (“Shareholder Loan”) from Bright
Dairy International Investment Limited (“Bright Dairy International”), a related company of
Bright Dairy Holdings Limited (“Bright”). Bright is Synlait’s cornerstone shareholder with
approximately 39% of the total shares on issue. The Shareholder Loan will provide Synlait
with liquidity to meet its immediate obligation to its banks, which is to repay $130 million on
15 July 2024. The repayment will provide further time for the Company to complete Stage 2
of the recapitalisation plan.
Stage 2 is currently focused on raising new equity capital (“Equity Raising”) to further
reduce debt levels. The structure and size of the Equity Raising have not yet been confirmed,
but the Company will clearly be targeting an amount which places the Company in a
sustainable financial position and is sufficient to satisfy bank refinancing terms. Concurrent
with the Equity Raising, Synlait is also seeking amended bank facility terms that following
completion of the Equity Raising, will provide headroom to meet Synlait’s expected working
capital and other corporate requirements as well as provide sufficient liquidity for repayment
of the Bonds.
The Shareholder Loan would be a related party transaction under the NZX Listing Rules and requires
approval of Synlait's shareholders (other than Bright) at a special meeting by way of an ordinary
resolution. As set out in more detail in Section 2.0, this report has been prepared in accordance with
the requirements of NZX Listing Rule 5.2.1 and relates only to the Shareholder Loan component of
the recapitalisation plan.
1.2. Summary Shareholder Loan Terms
The key terms of the Shareholder Loan are provided in Table 1 below.
Table 1: Summary of Shareholder Loan Terms
Issuer Bright Dairy International Investment Limited.
Instrument &
Size
Second ranking secured term loan for $130 million.
Maturity Date 12 months from the date of first drawdown with the option to extend for a further 12-
month term at Synlait’s election (subject to certain conditions).
Synlait Milk Limited – Independent Appraisal Report Page | 5
Executive Summary
Ranking Fully subordinated to Synlait’s senior banks but ranking ahead of the Bonds and
unsecured creditors (given the second ranking security).
Interest Rate 8% fixed for the first 12 months, reset to the 90-day bank bill rate plus 1.60% if
Synlait elects to extend for a further 12 months.
Interest is payable in cash every 3 months unless deferred for certain reasons
including if paying interest would result in Synlait breaching its bank covenants or
not satisfying solvency tests. Any interest deferred is capitalised and compounded
and payable when the deferral triggers cease to apply.
Other Key
Conditions
No financial covenants.
Synlait can defer repayment of the loan if at maturity repayment would result in
Synlait breaching its bank covenants or not satisfying solvency tests.
For as long as Bright owns not more than 50% of Synlait, if Bright does n ot support
the appointment of an independent director (provided that non-support would not
cause Synlait to be in breach of the NZX Listing Rules), Bright has the right to
require repayment of the loan (on 60-days notice) after a 60-day negotiation period
(which would require the approval of senior lenders).
1.3. Summary of our Assessment of the Shareholder Loan for Synlait
Shareholders
Our full assessment of the merits of the Shareholder Loan for Synlait shareholders is set out in
Section 5.0. A summary of our assessment is set out below in Table 2.
Table 2: Summary of Conclusions
Item Key Conclusions
Further
Information
Loan Terms The interest rate on the Shareholder Loan is fixed at 8.0% for the first 12
months (equivalent to a margin of ~2.6% over the 1-year swap rate) and
resets to 1.60% over the 90-day bank bill rate if extended for a further 12
months (at Synlait’s option subject to certain conditions). Compared to
rates that would be available from alternative lenders or credit providers,
we believe the interest rate and margin is concessionary. The implied
margin on the Shareholder Loan is comparable to the margin on Synlait’s
senior borrowings despite the Shareholder Loan being subordinated to
senior lenders.
While the headline term of the loan is 12 months, Synlait may extend the
Shareholder Loan at its option for a further 12 months (subject to certain
conditions). In certain circumstances where repayment would breach
financial covenants or result in the Company becoming insolvent, the loan
can be extended indefinitely.
We believe that the other loan terms and conditions are consistent with, or
more favourable to, terms that would otherwise be available from other
third-party lenders.
In essence, Synlait is exchanging senior secured borrowings for second
ranking secured borrowings with enhanced flexibility in relation to its
repayment and interest obligations, and with no discernible increase in
cost.
Moreover, without the Shareholder Loan Synlait would be incapable of
meeting its $130 million repayment obligation due on 15 July 2024. Unless
that payment is made and assuming the banks do not agree to alternative
arrangements, we believe that Synlait would need to commence a formal
insolvency process.
Section 5.1
and Section
5.2
Financial
Impact
The Shareholder Loan is the only option available to Synlait to meet its
$130 million bank repayment obligation by 15 July 2024.
The immediate financial impact of the Shareholder Loan is not significant
on Synlait’s overall debt position or earnings. However, as the Shareholder
Loan is subordinated, it does improve Synlait’s credit position with its
banks. It also provides Synlait with critical time and flexibility to advance
Stage 2 of its recapitalisation plans.
Completion of Stage 2 is essential for Synlait to achieve a more sustainable
financial position.
Section 5.3
and Section
5.4
Synlait Milk Limited – Independent Appraisal Report Page | 6
Executive Summary
Item Key Conclusions
Further
Information
Funding
Alternatives
Synlait has considered a wide range of alternatives to meet its bank
repayment obligations. These included the potential sale of Dairyworks and
its North Island assets, potential bank refinancing options and discussions
with Australasian credit funds regarding subordinated debt and preferential
equity.
However, many of the options have been ruled out or could not be
completed within the required timeframes.
Some of the funding alternatives remain viable, including asset sales and
bank refinancing (after or in conjunction with the Equity Raising), but are
incapable of being completed before the 15 July bank repayment deadline.
While Synlait has been in constructive discussions with its banks and could
request further waivers to extend the repayment deadline to advance these
funding alternatives, it is highly uncertain and outside of Synlait’s control
whether the banks would provide any further flexibility.
Section 3.9
Other
Considerations
Bright cannot vote on the resolution to approve the Shareholder Loan,
meaning more than half of the shareholders who vote on the resolution
have to vote in favour for the Shareholder Loan to be approved.
a2MC, as the holder of 19.8% of shares (equating to approximately 33% of
the remaining shares eligible to vote), will be influential in determining the
outcome of the resolution to approve the Shareholder Loan. As of the date
of this report, a2MC and Synlait have engaged in discussions but a2MC
has not yet determined how it will vote. If Synlait is advised how a2MC
intends to vote, it will update shareholders on the status of a2MC’s
intentions by way of a market announcement.
Section 5.5
Consequences
of Not
Approving
Shareholder
Loan
If the Shareholder Loan is not approved and Synlait cannot meet its $130
million repayment obligation to its banks, we think it is highly likely that
Synlait will need to initiate a formal insolvency process. That could mean
that the business is placed into voluntary administration or receivership.
As detailed in Section 5.6, the appointment of an administrator or receiver
may allow Synlait to continue to trade but the principal role of a receiver is
to recover funds for the banks and other preferential claims (staff wage
costs, taxes due to IRD, etc), while the effectiveness of an administrator is
also subject to the cooperation of secured creditors. Given the quantum of
debt and the reduced current marketability of Synlait’s assets, the amount
or timing of any surplus value available to shareholders under a voluntary
administration or receivership alternative is highly uncertain.
Section 5.6
1.4. Conclusion Regarding the Fairness of the Shareholder Loan
After having regard to all relevant factors, we conclude that the terms and conditions of the
Shareholder Loan are fair to Synlait shareholders not associated with Bright.
We believe that the Shareholder Loan provides a cost-effective option to deal with Synlait’s
immediate debt repayment obligations. It will provide the necessary time for the Company to
execute on its deleveraging plans in a manner that maximises shareholder value.
Shareholders will likely have the opportunity to better consider the potential implications of
administration or receivership at any special shareholder meeting which we anticipate would
be required to approve the Equity Raising. The Synlait board and its advisers are continuing
to progress the structure, terms and conditions of the Equity Raise and will further update
shareholders by the end of August, possibly earlier.
Shareholders should however consider their own investment objectives before deciding whether or
not to approve the Shareholder Loan.
Synlait Milk Limited – Independent Appraisal Report
Scope of the Report Page | 7
2.0 Scope of the Report
2.1. Regulatory Requirements
2.1.1. NZX Listing Rule Requirements
The Shareholder Loan is subject to rule 5.2.1 of the NZX Listing Rules. Pursuant to those rules,
Synlait may not enter into a Material Transaction with a Related Party (i.e. Bright) unless that
transaction is approved by an ordinary resolution of shareholders not associated with the Related
Party or is conditional on such approval.
A “Material Transaction” for the purposes of the NZX Listing Rules includes a transaction whereby an
Issuer “borrows, lends, pays or receives money, or incurs an obligation” of an amount above 10% of
the Average Market Capitalisation of the Company. Under the terms of the Shareholder Loan, Bright
Dairy International is advancing $130 million to Synlait, representing approximately 130% of Synlait’s
Average Market Capitalisation
1
.
NZX Listing Rule 7.8.8 requires that the notice of special meeting to consider the ordinary resolution
referred to above must be accompanied by an Appraisal Report, prepared by an independent adviser
to opine on the fairness of the transaction to shareholders not associated with the relevant related
party. This report is therefore addressed to the independent directors of Synlait for the benefit of
shareholders not associated with Bright.
The report should not be used for any other purpose and should be read in conjunction with the
declarations, qualifications and consents set out in Appendix 2.
2.1.2. Declarations
Pursuant to Listing Rule 7.10.2, we state that:
(i) In our opinion, the terms and conditions of the Shareholder Loan are fair to shareholders
of Synlait other than those associated with Bright. The grounds for this opinion are set out
in this report;
(ii) We believe that the shareholders entitled to vote on the resolution in relation to the
Shareholder Loan will be provided with sufficient information to understand all relevant
factors and on which to make an informed decision. The two main sources of information
are this report and the Notice of Special Meeting;
(iii) We confirm that we have been provided with all of the information that we believe is
required for the purposes of preparing this report; and
(iv) The material assumptions on which our opinion has been based are clearly set out in the
body of this report.
2.2. Basis of Assessment and Evaluation
The content required to be included in the Appraisal Report pursuant to the NZX Listing Rules is
clearly set out in rule 7.10.2. Among other things, the Appraisal Report must state whether or not the
reporter considers that the terms and conditions of the proposed transaction are “fair” to the
Company’s shareholders other than those shareholders (if any) that may be associated with the
related parties to the transaction. Although there is no statutory definition of “fair” or any specific
guidance provided in the NZX Listing Rules, our assessment of the fairness of the Shareholder Loan
is based on a consideration of:
The consequences for the existing shareholders if the Shareholder Loan is approved or not
approved; and
The overall terms for the Shareholder Loan.
1
Based on the 20-day volume weighted average price of Synlait shares traded on the NZX up to 31 May 2024,
being the last trading day prior to Synlait’s announcement regarding the Shareholder Loan.
Synlait Milk Limited – Independent Appraisal Report
Scope of the Report Page | 8
Northington Partners has evaluated the Shareholder Loan by reviewing the following factors:
Whether the Shareholder Loan terms reflect arms-length commercial terms and whether it
confers any additional value to Bright;
The financial implications of the Shareholder Loan for Synlait, particularly with reference to its
senior borrowing financial covenants;
Any other alternatives that are available to Synlait to secure the required funding;
Any downside risks of shareholders approving the Shareholder Loan and the potential
implications of the Shareholder Loan approval not being obtained; and
Other considerations that may be necessary for shareholders to make an informed decision
in relation to assessing the Shareholder Loan.
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 9
3.0 Profile of Synlait
3.1. Overview of the Company
Synlait is a New Zealand-based dairy and nutrition company that produces a range of added-value
nutritional products, including infant nutrition, foodservice and ingredients products. Founded in 2005
and headquartered in Dunsandel, Canterbury, the Company has developed a reputation for
producing higher value nutritional products for leading milk-based health and nutrition customers
internationally. While the Company's core operations involve milk powder manufacturing, it has
expanded into the consumer category and currently supplies fresh milk and cream to Foodstuffs
South Island Limited (“FSSI”) and markets cheese products under its Talbot Forest Cheese and
Dairyworks brands. It also has a growing Foodservice UHT cream business in China and Southeast
Asia.
Synlait’s shares were listed on the NZX in 2013 and on the ASX in 2016.
3.2. Background
The Company was founded in 2005 by Canterbury dairy farmers and entrepreneurs Ben Dingle,
Juliet Maclean and John Penno. Following the establishment of Fonterra in 2001, the Company
emerged as one of a handful of independent dairy processors and has established a significant
position in the New Zealand dairy industry.
The business was initially focused on significant investments at its Dunsandel facility. The
commissioning of Dryer 1 with a capacity of 45,000 MT, an anhydrous milk fat (“AMF”) plant capable
of producing 25,000 MT and a reverse osmosis plant were all key early developments. These
investments enabled Synlait to process approximately ~217 million litres of raw milk into around
33,200 MT of dairy products in FY09.
Synlait further expanded its capabilities by commissioning its Special Milks Dryer (“SMD”), which has
a capacity of 1,800 MT. This development would eventually position Synlait as one of only two
manufacturers globally capable of producing lactoferrin as a spray-dried powder.
Bright acquired a 51% shareholding in the Company as part of a capital raise in 2010. Synlait used
the new capital to commission Dryer 2, another sophisticated facility specifically designed for infant
formula production (with capacity of 45,000 MT). This advanced facility allowed Synlait to
manufacture infant formula and nutritional products tailored to the unique specifications required by
leading global infant formula brands.
The establishment of Dryer 2 allowed the Company to enter into agreements with Bright to supply its
flagship infant nutrition formula, Pure Canterbury. Additionally, Synlait began producing the a2
Platinum infant formula for a2MC, further cementing its reputation as a premium supplier in the global
dairy market.
Since the early 2000’s, China has adopted stricter regulations for infant formula imports, including
requirements for factory registration and brand approval to ensure quality. Synlait applied to be
registered as a dairy and infant formula manufacturer to the Certification and Accreditation
Administration of the Peoples Republic of China (“CNCA”) which it received in 2014. A positive
development for Synlait and its partners was the withdrawal of numerous locally manufactured and
imported brands from the Chinese market, resulting in higher demand for the brands that remained.
In 2013, the Company announced an initial public offering of shares and listing on the NZX. The IPO
aimed to raise $75 million in new capital, earmarked for debt repayment and to fund several growth
initiatives. These included commissioning a new lactoferrin extraction and purification facility, an on-
site blending and consumer packaging plant, a new dry store, a quality testing laboratory and a
45,000 MT spray dryer (Dryer 3). Additionally, the IPO provided an opportunity for existing
shareholders to participate in a ~$38.7 million secondary offering. As a result of the IPO, Bright’s
shareholding in Synlait decreased to 39.0%.
In 2016, Synlait successfully completed a $98 million entitlement offer, with the capital raised used for
a combination of debt repayment and contributions to a three-year capital growth program totalling
approximately $300 million. Following this capital raise, Synlait also completed a compliance listing
on the ASX.
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 10
In 2017, Synlait progressed further investment in a liquid dairy packaging facility at Dunsandel to
supply FSSI with private label fresh milk and cream products. This transaction marked the start of its
new “everyday dairy” (now called Consumer) strategy. Further investments in this strategy were
made through the acquisition of household dairy brands, Talbot Forest Cheese and Dairyworks, in
2020.
Synlait's second production facility in Pokeno became operational in 2019. That facility is capable of
producing a range of nutritional and formulated powders, including infant-grade skim milk, whole milk,
and infant formula base powders. Initially set to produce 40,000 MT, the facility's capacity was
subsequently increased to 45,000 MT and includes the capability to handle plant-based products as
well as dairy.
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 11
3.3. Significant Historical Events
Figure 1: Significant Historical Events
2005
2008 2010 2011 2012
Synlait is formed
Synlait Dunsandel opens with
Dryer 1 and the AMF facility.
Bright invests
capital to
become a 51%
shareholder.
Dryer 2 commissioned providing the
capability to produce infant formula
and nutritional products to unique
customer specifications.
Agreement signed with a2MC for
Synlait to process and supply a2
Platinum infant formula.
2013
$75m capital raise and NZX-listing as part
of $114 million IPO. Bright Dairy reduces
shareholding to 39% with provisions for
non-standard governance arrangements.
2015
Dryer 3 commissioned at
Dunsandel, increasing capacity by
45,000 MT
2016
$98m entitlement offer and
ASX-listing.
Synlait enters an agreement to acquire 28
hectares in Pokeno to establish a second
nutritional powder manufacturing site.
2019
Advanced liquid dairy
facility commissioned.
FSSI fresh milk supply
commences.
$180 million retail bond
raise completed, with
bonds listed on the NZDX.
Pokeno plant commences
production in September
2019.
Revised agreement with a2MC agreed. Term
extended through to at least July 2025 and updated
pricing terms to reflect the commitment by both parties
to an ongoing market-competitive pricing regime.
2018
Acquisition of Dairyworks
accelerating Synlait’s diversification
strategy through achieving scale in
the everyday dairy category.
2020
$200m capital raise via ~$180m
placement and a $20 million
underwritten share purchase plan.
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 12
Dec: Downward revision of guidance
resulting from Covid-19 impact on
customer demand and supply chain
disruptions.
2022
Synlait announces a revised strategy with focus on improving asset
utilisation at Pokeno and Dunsandel (liquids facility). Synlait affirms
its belief that by the end of FY23 the recovery plan will see the
Company return to similar levels of profitability, and debt ratios as
the years leading into FY21.
Half year results impacted
by SAP implementation
challenges. Full year
guidance reaffirmed.
Sep: Completion of bank
refinancing including a provision
for a mandatory prepayment of
$130 million no later than Mar
2024.
2024
Terms with banking
syndicate renegotiated
with an extension until July
2024 in respect of the
$130 million repayment.
Downward revision of
guidance.
Announces a strategic
review of North Island
assets including its
manufacturing facility in
Pokeno. Further,
downward revision of
guidance.
Mar: Further downward revision of
guidance primarily resulting from
customer demand, shipping delays
and commodity prices.
2021
May: Further downward revision of full
year guidance. Synlait is granted a
covenant waiver from its banking
syndicate.
North Island production
for multinational customer
commences.
2023
Synlait and a2MC agree to enter into a
confidential binding arbitration process to
determine the validity of the notice of
cancellation of the exclusivity provisions.
Announces its
intention to explore
divestment options for
Dairyworks.
Bright commits to
providing up to $130m in
the form of a bridging
inter-company loan if the
Company is unable to
meet its prepayment
obligation through delays
in its deleveraging plans.
Synlait Agrees on
terms for a $130
million shareholder
loan with Bright.
Accordingly seeks
covenant waiver
from lenders.
Synlait provides
guidance update at the
lower end of its previous
guidance range.
Confirms the
unsuccessful conclusion
of the formal sale
process for Dairyworks.
April
May
Sep: Synlait receives
notice from a2MC
purporting to cancel the
exclusivity arrangements
under the NPMSA.
Bright affirms their intent to
participate in a potential
capital raise, subject to
meeting certain terms and
conditions.
March
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 13
3.4. Channels and Products
Synlait has established a diverse product portfolio that caters to various segments of the dairy
market. Central to Synlait’s offerings are Advanced Nutrition products, which are defined as
formulated powders in bulk or consumer-ready format, formulated beverages, and specialty
nutritional ingredients. The Company also produces an extensive range of nutritional milk powders,
including skim milk powder, whole milk powder, and specialty powders like AMF.
A summary of the product portfolio is presented in Figure 2.
Figure 2: Synlait Products by Channel
Advanced Nutrition
Consumer-Ready
Nutritional Powders
(Infant)
Consumer-Ready
Nutritional Beverages
Nutritional Base
Powders
Specialty Ingredients
Ingredients Foodservice Consumer
Whole and
Skim Milk
Powders
Anhydrous Milk
Fat
Shelf-Stable UHT
Natural and
Specialty
Cheese
Milk Butter
3.5. Milk Supply
Synlait has attracted and maintained its supplier base by building strong long-term relationships with
its farmers. The growth in supplier numbers has been supported by offering financial incentives,
allowing farmers to supply milk without having to acquire shares in the Company, as well as helping
farmers to implement innovative and sustainable farming practices.
A key feature of Synlait’s relationship with farmers is its practice of paying incentive payments over
the base milk price for suppliers who participate in special milk programmes such as A1 protein-free,
grass fed, and Lead With Pride
TM
. Figure 3 illustrates the impact of these incentive payments on the
average milk price paid to farmers for historic periods. This shows that over the last 9 years, Synlait’s
average payout inclusive of incentive payments represents a ~3% premium to Fonterra’s farmgate
milk price.
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 14
Figure 3: Historical Milk Price Payment ($ per kgMS)
Sources: Synlait annual, interim reports and NZX announcements
Synlait’s milk supply pool grew to 285 farms (South Island 220, North Island 65) in the 2022/23
milking season, but dropped to 274 farms (South Island 215, North Island 59) for the most recent
season. Cessation notices from farmer suppliers have also increased dramatically in the last month
following publicity over the Company’s financial issues. Synlait announced to the market on 4 June
that ‘a significant majority’ of the Company’s farmer supplier base has submitted cessation notices.
The cessation notice period is however two-years, meaning that notices received in the year between
1 June 2023 to 31 May 2024 would not take effect until after the completion of another two seasons.
Synlait notes that the retention of milk supply remains a critical priority and that submitting a
cessation notice provides farmers with an option, rather than a clear intention to sign with other
processors. Rebuilding supplier confidence and securing the withdrawal of these cessation notices is
clearly going to be a key element of Synlait’s recovery plan.
3.6. Customer Relationships
Synlait built strong relationships with leading food and beverage and advanced nutrition brands in
both New Zealand and overseas. These customers include a2MC, Foodstuffs South Island and a
large multinational food and nutrition business. Synlait’s top three customers account for ~55%
(FY23) of revenue.
Synlait has been a key manufacturing partner for a2MC since 2012, producing infant formula under a
Nutritional Powders Manufacturing and Supply Agreement (“NPMSA”). Synlait holds the State
Administration for Market Regulation (“SAMR”) licence for a2MC’s Chinese labelled Infant Formula
(stages one, two and three), to manufacture and export these products to the China market until
September 2027. This SAMR registration is held by Synlait and attached to the Dunsandel facility.
In September 2023, a2MC announced it had provided notice of termination of the exclusive
production arrangements for a2 Platinum, a2
至初 and other nutritional products under the NPMSA.
Synlait contests this termination notice and is currently involved in a binding confidential arbitration
process to resolve the validity of a2MC’s action.
$4.48 $3.91 $6.16 $6.65 $6.40 $7.05 $7.55 $9.30 $8.22
$0.06
$0.11
$0.14
$0.13
$0.18
$0.25
$0.27
$0.29
$0.27
$4.54
$4.02
$6.30
$6.78
$6.58
$7.30
$7.82
$9.59
$8.49
2014/152015/162016/172017/182018/192019/202020/212021/222022/23
Avg. Base Milk PriceIncentivesFonterra Farmgate Milk Price
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 15
3.7. Financial Overview
3.7.1. Revenue and Earnings
Figure 4 summarises Synlait’s revenue and earnings performance (at the EBITDA level) for the 10
years to FY23, along with the Company’s most recent guidance for FY24.
Figure 4: Historical and Forecast Financial Performance (NZ$)
Sources: Synlait annual, interim reports and NZX announcements.
Note: Synlait adopted NZ IFRS-15, revenue from contracts with customers from FY19 and NZ IFRS-16, lease from FY20.
Therefore, comparison with prior years may not be directly comparable.
Note: Historic EBITDA for the period FY19-FY23 has been restated as if the current product costing method change was applied
retrospectively. FY24F excludes a non-cash adjustment for the product costing method change of approximately $17 million.
The main features of Synlait's historic financial performance can be summarised as follows:
Since listing, the Company has reported strong revenue growth driven by capacity expansion
and stable underlying commodity prices. Revenue peaked at NZ$1.66b in FY22, representing
a compounding annual growth rate of 14%.
However, since FY22, Synlait has reported declining revenue due to lower demand for
ingredients and advanced nutrition products. This weakness is expected to continue, with
broker consensus revenue for FY24 forecast at ~NZ$1.49b, down 7% on the previous year.
While profitability increased in line with revenues until FY20, earnings in recent years have
fluctuated markedly, primarily due to softer demand and lower margins. Overall gross
margins have compressed significantly, from around 15% in FY19 to approximately 9% in
FY23. On a unit price basis, advanced nutrition margins have also decreased materially over
this period.
Synlait’s EBITDA margin has also reduced from approximately 15% in FY19 to around 6% in
FY23, reflecting lower gross margins as above as well as reduced plant utilisation,
particularly the underutilisation of the Pokeno facility.
Synlait is now forecasting FY24 EBITDA at the lower end of its guidance range of NZ$45
million to NZ$60 million. This revision is based on several factors, including:
- The softening of ingredients margins due to pricing pressures and adverse exchange
rates.
- Revised inventory provisioning and anticipated write-downs in the second half of the
fiscal year.
$44
$41
$84
$89
$139
$45.0
$60.0
$150
$154
$50
$132
$81
-
$0.2b
$0.4b
$0.6b
$0.8b
$1.0b
$1.2b
$1.4b
$1.6b
$1.8b
-
$20m
$40m
$60m
$80m
$100m
$120m
$140m
$160m
$180m
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23FY24F
EBITDA (LHS)EBITDA GuidanceRevenue (RHS)Consensus
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 16
3.7.2. Capital Expenditure
Figure 5: Historic Capital Expenditure (NZ$m)
Sources: Synlait and NPL Analysis
Note: Capital expenditure excludes expenditure attributable to goodwill and brands, and working capital acquired through the
acquisition of Dairyworks and Talbot Forrest.
Synlait has invested over $1.5b in capital expenditure since its inception. Figure 5 outlines annual
capital expenditure spend since FY14, and reflects the following:
Significant investments were made in the Dunsandel facility to increase processing capacity
and enhance capability. This included the addition of new dryers, expansion of the lactoferrin
plant, advanced liquid milks and other infrastructure improvements which totalled ~$480m
over the period.
Synlait commissioned the Pokeno facility in September 2019, with a view to diversify its
production base and increase its overall capacity. Capital expenditure for North Island
production (including Pokeno, the Auckland Blending and Canning plant and other projects)
has totalled ~NZ$450m.
As production capacity and business complexity has grown, the Company has continued to
invest in improving efficiency through technology. A key element of this was its recent
investment in a new ERP system (~ NZ$65m).
3.7.3. Borrowings
Figure 6 summarises how Synlait has funded its growth and diversification objectives over the last 10
years. While the Company has generated meaningful cash earnings and raised close to $300 million
in new equity capital, a significant proportion of the capital expenditure has been debt funded. This
has seen net debt grow from ~$105m in FY14 to ~$560m as at 31 January 2024. Relative to the
lower end of current EBITDA guidance of ~$45 million (FY24), the ratio of Net Debt to EBITDA
exceeds 12x.
Figure 6: FY14 – 1H24 Net Debt Bridge (NZ$m)
Sources: Synlait annual and interim reports and NZX announcements. Note: NPL Estimate. Totals may not sum due to rounding.
$100m
$136m
$20m
$59m
$120m
$341m
$176m
$139m
$93m
$61m
$15m
$0.3b
$0.5b
$0.7b
$1.2b
$1.4b
$1.5b
-
$50
$100
$150
$200
$250
$300
$350
$400
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY231H24
Dunsandel GrowthNorth IslandERP
AcquisitionsOtherCumulative Capex
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 17
3.8. Ownership and Share Price Performance
Bright is Synlait’s largest shareholder, maintaining a 39.0% shareholding since the IPO in 2013. The
Company’s next largest shareholder is a2MC who, as discussed above, is also a key customer of
Synlait. The top five shareholders (as at 30 April 2024) are set out in Table 3.
Table 3: Top 5 Shareholders
Source: Iress, NZX Filings
Figure 7 summarises Synlait’s shareholder return performance for the period between listing (23 July
2013) and 5 June 2024, relative to the NZX50 Gross Index (inclusive of dividends).
Although Synlait initially outperformed the market on the back of strong demand for infant formula
driven by a2MC, its returns have trailed the broader index since late 2020. The performance since
2020 has largely paralleled Synlait’s lower earnings outlook, contract disputes with a2MC, extremely
poor returns on Pokeno and subsequent debt issues.
Figure 7: Synlait Total Shareholder Return Relative to NZX Gross Index (Rebased to IPO Price)
Source: IRESS, Northington Partners. Period starting 23 July 2013 to 5 June 2024.
-
200
400
600
800
1,000
1,200
1,400
1,600
Jun-13Jun-14Jun-15Jun-16Jun-17Jun-18Jun-19Jun-20Jun-21Jun-22Jun-23
Jun-24
SMLNZ50G
Shareholder Shares Held (m)
Shareholding
Percentage
Bright Dairy Holding Ltd. 85.27 39.0%
The A2 Milk Company Limited 43.35 19.8%
Chester Asset Management Pty Ltd 8.71 4.0%
Accident Compensation Corporation 7.70 3.4%
New Zealand Funds Management Ltd. 6.38 2.9%
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 18
3.9. Recapitalisation Plan Summary
Synlait commenced a strategic review to consider potential avenues to reduce debt in 2023, with the
announcement of its intention to divest Dairyworks in June 2023. Although the Company received
credible expressions of interest in Dairyworks from a number of parties, no binding offers were received
at a price level that was acceptable to the Board.
The proceeds of a possible sale of Dairyworks were unlikely to be sufficient to fund Synlait’s $130
million repayment obligation to its banks, and the Company has been actively exploring a number of
other deleveraging options. Given these options were insufficiently advanced, Synlait sought and
obtained a letter of support from Bright (received on 28 March 2024) which included a commitment from
Bright to provide the Shareholder Loan and participate in an equity capital raising.
We summarise below the current recapitalisation plan proposed by Synlait as well as the options
considered as part of its broader deleveraging plans.
3.9.1. Equity Raising
If the Shareholder Loan is approved, the Company is planning to undertake an equity capital raising to
ensure that Synlait is appropriately capitalised. Bright has indicated that it would support the Equity
Raising, subject to terms being finalised. The Synlait board and its advisers are continuing to progress
the structure, terms and conditions of the Equity Raise and will further update shareholders in due
course.
Synlait will also be seeking to refinance and amend its bank facilities in parallel with the Equity Raising.
It is expected that following the Equity Raising, the amended facilities will be available to be drawn to
meet Synlait’s expected ongoing working capital and other corporate requirements, including providing
sufficient headroom to repay the Bonds. Further information will be provided about the refinancing
arrangements once terms have been agreed with the banks.
We believe that Bright's shareholding in Synlait is likely to increase as a result of the Equity Raising. In
these circumstances, Bright’s participation in the Equity Raising would require shareholder approvals
under both the NZX Listing Rules (assuming the Equity Raising comprises a transaction with a related
party) and the Takeovers Code (due to Bright increasing its voting rights through an allotment of
shares), which in turn requires the provision of an independent appraisal report under the NZX Listing
Rules and an independent adviser’s report under the Takeovers Code. These reports would include
amongst other things, an opinion on the merits of the allotment of shares to Bright and an evaluation of
the issue price.
3.9.2. Other Funding Alternatives
Table 4: Summary of Other Funding Alternatives Considered
Option Discussion Timing
Asset Sales On 2 April 2024, Synlait announced that it was conducting a
strategic review of its North Island assets comprising the
Pokeno and Auckland facilities. Synlait has struggled to
reach an acceptable level of utilisation of these assets and
they are currently generating significant negative cash flows.
This position is not expected to materially improve before
FY26. To minimise the adverse impact of the underutilised
plants on Synlait’s near-term cash flows, the Company may
sell some or all of its interest in the assets. We understand
that some preliminary expressions of interest have been
received.
While the North Island assets have a carrying value in
excess of $340 million (excluding right of use assets), we
would expect buyer interest to reflect a material discount to
that value given the significant plant underutilisation, on-
going contractual obligations to Synlait’s multinational
customer and the significant customisation made to the
Pokeno facility to meet the customer’s requirements.
At this stage, it is uncertain
whether a sale of either
asset can be secured and
therefore timing of
associated proceeds is
unknown.
Given Synlait’s current
market capitalisation, asset
sales are also likely to be a
“major transaction” under
the NZX Listing Rules and
will require majority
shareholder approval
(noting that Bright could
vote on the related
resolution). This process
will add to the uncertainty
Synlait Milk Limited – Independent Appraisal Report
Profile of Synlait Page | 19
Although no offers emerged for Dairyworks at a price
satisfactory to Synlait after a protracted sale process, it
remains a viable funding option. However, we expect that
any interest would be below the current carrying value of
approximately $120 million.
regarding outcome and
timing.
Alternative
Debt Funding
Synlait has considered a range of alternative debt or “quasi-
equity“ alternatives, ranging from subordinated debt to
preferred equity. As detailed in Section 5.1.2, this included
engaging with potential third-party private credit investors.
However, due to indicative pricing and timing, these options
were initially discounted.
Synlait also considered options to refinance its existing
senior bank facilities with new banking facilities. However,
given the Company’s financial position, there was limited
appetite at the time.
We expect that alternative
debt solutions are unlikely
to be available until after
completion of the Equity
Raising.
Synlait Milk Limited – Independent Appraisal Report
Overview of the Shareholder Loan and Bank Facilities Page | 20
4.0 Overview of the Shareholder Loan and Bank Facilities
4.1. Shareholder Loan Key Terms
The key terms of the Shareholder Loan are summarised in Table 5 below. More detail is provided in the
Notice of Meeting.
Table 5: Shareholder Loan Terms
Shareholder Loan Facility - Key Terms
Borrower Synlait Milk Limited.
Lender Bright Dairy International Investment Limited.
Maturity Date 12 months from the date of first drawdown, subject to the Extension Option and
Principal Deferral.
Amount NZ$130m single draw term loan.
Extension Option On the date that is one month prior to the then current Maturity Date, the Borrower has
the option to extend the Maturity Date for a further 12 months from the original Maturity
Date by way of board resolution of the Borrower and notification to the Lender, subject
to:
the shares of the Borrower remaining listed;
no administrator or liquidator having been appointed to the Borrower; and
Bright holds not less than 39.01% of the shares in the Borrower (if no equity raise
has been conducted), or 51% (if an equity raise has been conducted), in each case
other than as a result of a voluntary sale of shares by Bright.
Purpose The Borrower may only use the proceeds of the Facility to repay and/or prepay (in
whole or in part) its due and payable payment obligations under the senior facility
agreement.
Interest Rate 8% fixed for the first year reset to the 3-month bank bill + 1.60% for the second year,
payable every three months.
Subject to Interest Deferral below.
Interest Deferral Interest payments may be deferred if:
the Company fails to satisfy the solvency test;
a senior creditor has notified Synlait (or Synlait has notified a senior creditor) that a
senior event of default has occurred;
a breach of a senior financial covenant has occurred or would occur as a result of
such payment;
senior lenders have waived or amended a financial covenant in the senior facility;
senior lenders have taken acceleration action under the senior facility;
the cash interest payment could not be made from Free Cash Flow (defined term);
or
any indebtedness to senior creditors that was scheduled to be paid in the interest
period has not been paid, or has been deferred.
Deferred interest capitalises and itself accrues interest. The Borrower is required to
catch-up on deferred interest on the next interest payment date where no interest
deferral event is continuing.
Principal Deferral The obligation to repay principal on the Maturity Date will be deferred if:
the Company fails to satisfy the solvency test;
a breach of senior financial covenant has occurred or would occur as a result of
such payment; or
senior lenders have waived or amended a financial covenant in the senior facility.
Mandatory Prepayment In the event that Dairyworks is sold on or prior to the date that is 12 months from the
drawdown date, the Borrower will make a prepayment equal to the net proceeds of sale
on the date that is 12 months from the drawdown date (subject to the consent of senior
creditors).
In the event that Dairyworks is sold after the date that is 12 months from the drawdown
date, the Borrower shall make a prepayment equal to the net proceeds of sale on the
date that is 1 business day after completion of the Dairyworks Sale (subject to the
consent of senior creditors).
Synlait Milk Limited – Independent Appraisal Report
Overview of the Shareholder Loan and Bank Facilities Page | 21
Security and Ranking Second ranking ‘all-assets’ security from the Company and all guarantors, including
second ranking mortgages over real property assets (consistent with senior security
and including all major subsidiaries of Synlait).
Subordination The Shareholder Loan is fully subordinated to the senior facilities. There will be no
restrictions on Synlait and the senior lenders agreeing any amendments to the senior
facility documents. No enforcement by Bright Dairy International without senior creditor
consent unless a senior default has occurred and senior creditors have not enforced
security for 90 days. Bright Dairy International will be dragged by any amendments,
consents, waivers granted by senior creditors.
Financial Covenants No financial covenants.
Events of Default Consistent with events of default under the bank facilities, an event of default will occur
if Synlait:
fails to pay any principal or interest on the Shareholder Loan on its due date;
breaches certain undertakings it has made to Bright including restrictions on asset
disposals or acquisitions, other borrowings or granting of other security;
has made a breach of representation;
is in cross-default where Synlait ca nnot meet any other indebtedness of not less
than $5 million;
experiences a material adverse effect (in Bright’s reasonable opinion); or
is insolvent or ceases business.
In such circumstances, Bright is restricted from enforcing its security without the
consent of the banks, other than in certain instances (see Notice of Meeting for further
details).
Event of Review An Event of Review will occur if an ‘Independent Director’ (as defined in the NZX
Listing Rules) is appointed to the board of the Borrower in circumstances where the
Lender has not supported the appointment of that person (provided that the parties
agree that such E vent of Review shall not occur i f the non-support would cause the
Borrower to be in breach of the NZX Listing Rules). The Event of Review only applies
for the period that Bright owns not more than 50% of the shares in S ynlait.
This Event of Review w ill trigger a 60-day negotiation period and if satisfactory
amendments are not agreed then Bright Dairy I nternational has an ability to require
repayment/cancellation on 60-days’ notice.
In addition to Synlait shareholder approval, the Shareholder Loan is conditional on the approval of
Bright’s ultimate shareholder and the State-owned Assets Supervision and Administration Commission
of Shanghai (SASAC), as well as final documentation from Synlait’s bank syndicate. These conditions
are expected to be fulfilled prior to drawing of the Shareholder Loan.
4.2. Bank Facility Terms
4.2.1. Current Terms
The existing bank facilities and terms are summarised in Table 6 below.
Table 6: Bank Facility Summary
Synlait Senior Facility Agreement Summary
Lenders
ANZ Bank (syndicate lead), Bank of China, China Construction Bank, HSBC, and
Rabobank
Facilities
1.Working capital facility of $270m, maturing 1 October 2024 together with an $10m
on-demand bilateral facility. This facility is a seasonal facility where the facility limits
change at several times during the term of facility:
$50m limit step down on 27 June 2024; and
$58m limit step down on 31 July 2024.
2.Revolving credit facilities of $230m. These facilities step down over time with
maturity dates between 31 July 2024 and 1 October 2025 as follows
$50m limit step down on 31 July 2024;
$46m maturity on 31 July 2024;
Synlait Milk Limited – Independent Appraisal Report
Overview of the Shareholder Loan and Bank Facilities Page | 22
$50m maturity on 1 October 2024; and
$84m maturity on 1 October 2025.
In addition, Synlait is required to make a prepayment of $130m by no later than 15 July
2024. This prepayment was originally due on 28 March 2024 before an extension was
granted by the banking syndicate on 28 March 2024. Some of the amounts of the limit
step downs and maturities referred to above would be affected by the $130m
prepayment to be made on 15 July 2024.
Security
The facilities are secured under the terms of various General Security Deeds provided
by the Company and its subsidiaries, by which all present and future property is
secured to the Lenders.
Financial Covenants
The key financial covenants for the facilities as amended on 28 March 2024 include:
Total shareholder funds of no less than $400m at all times (previously $600m).
Working capital ratio (debtors and inventory to outstanding working capital facility)
of no less than 1.5x at all times.
Interest cover ratio (EBITDA to interest) of no less than 1.75x for the 31 July 2024
reporting date (previously 2.25x), increasing to 3.0x for the 31 July 2025 reporting
date.
Total leverage ratio (total debt to EBITDA) of no greater than 3.5x for the 31 July
2024 reporting date, decreasing to no greater than 3.25x on and from the 31 July
2025 reporting date.
Senior leverage (senior secured debt, excluding the Bonds, to EBITDA) ratio of no
greater than 2.25x for the 31 July 2024 reporting date.
4.2.2. Refinancing
As part of the bank approval process for the Shareholder Loan, Synlait has sought deferrals of the 27
June 2024 and 31 July 2024 step downs and maturities. Some of these amounts will also be affected
by the $130 million payment to be made on 15 July 2024, funded by proceeds from the Shareholder
Loan. We understand that the Shareholder Loan will be applied on a pro rata basis between the drawn
balances of the revolving credit facility and the working capital facility.
Synlait is also forecasting that it is unlikely to meet three of its current banking covenants as at 31 July
2024; the interest coverage ratio, the total leverage ratio, and senior leverage ratio. This reflects the
timing of Synlait's recapitalisation plans and further weakening in its financial performance.
Consequently, Synlait has also requested waivers for the covenants.
Synlait’s banks have since confirmed credit approval to both a deferral of maturities / step downs and
covenant waivers until such time that Synlait’s Equity Raising is completed. Synlait and the banks are in
the process of negotiating the documentation for these waivers and satisfying any applicable
conditions. If documentation for the step down deferrals or covenant waivers is not received by the
banks prior to the relevant date, Synlait will likely be in default under the bank facilities. We believe that
Synlait will not be in a position to obtain the deferrals or covenant waivers without the Shareholder
Loan.
In connection with the proposed Equity Raising, Synlait is also proposing to refinance its bank facilities
and negotiate new loan terms. Further information will be provided about the refinancing once any
arrangements have been agreed.
Synlait Milk Limited – Independent Appraisal Report
Evaluation of the Fairness of the Shareholder Loan Page | 23
5.0 Evaluation of the Fairness of the Shareholder Loan
5.1. Shareholder Loan Pricing
Publicly disclosed pricing for sub-ordinated loans issued by companies with similar credit quality to
Synlait is very limited. Directly comparable evidence would require that the issuing company was in the
same financial position and facing the same significant challenges as Synlait.
We have however reviewed a range of evidence in determining whether the Shareholder Loan pricing is
fair to Synlait shareholders not associated with Bright. This includes:
i. The pricing for Synlait’s existing Bonds;
ii. Indicative pricing provided to Synlait by other third-party lenders; and
iii. The pricing for other broadly comparable subordinated instruments listed on the NZDX.
Each of these are considered further below.
5.1.1. Synlait NZDX Bond Pricing
As noted previously, Synlait issued $180 million of bonds in December 2019 which trade on the NZDX.
The Bonds were originally priced at 2.5% over the 5-year swap rate prevailing at the time of issue and
broadly traded at a margin of between 2.0% - 4.0% over the underlying swap rate in the period from
listing until early 2023. The average margin was ~3.1% over the period to April 2023.
The margin has steadily increased since March 2023 as the deterioration in Synlait’s financial position
became evident – starting with Synlait’s consecutive FY23 profit downgrades in March and April 2023,
followed by a range of developments which impacted on Synlait’s credit position (as summarised in
Section 3.3). The Bonds are now trading at a level which indicates a high chance of credit loss for
bondholders, with recent prices of approximately $0.53 per $1.00 of face value implying a yield of over
160%.
It is difficult to meaningfully infer a reasonable market interest rate for the Shareholder Loan from the
current Bond pricing. However, even though the Shareholder Loan will rank ahead of the Bonds in a
liquidation of Synlait, this market evidence clearly suggests that the implied margin of approximately
2.6% for the Shareholder Loan should be viewed as being well below market pricing.
5.1.2. Third Party Pricing
As part of the broader deleveraging plan, Synlait considered subordinated and mezzanine funding
alternatives to refinance both its bank repayment obligations and the NZDX Bonds. This included taking
market soundings from a range of Australasian credit funds for a subordinated private loan. While these
options were not developed beyond an exploratory stage, we understand that the pricing feedback in
late 2023 indicated equivalent rates of at least 15% for terms of 3 or more years. These options were
ruled out due to the cost and timing relative to the Shareholder Loan and other options being explored
(including the sale of Dairyworks).
5.1.3. Comparable Listed Pricing
There are a very limited number of listed instruments with broadly similar features and term to the
Shareholder Loan. However, Fletcher Building
2
and Infratil have listed instruments which share a
similar ranking profile behind senior lenders and have similar maturity dates. Fletcher Building’s capital
notes (unsecured and subordinated) have maturities of March 2026, 2027 and 2028 and Infratil’s
infrastructure bonds (unsecured and ranking behind the senior borrowings of Infratil’s subsidiaries)
have maturities of March 2026, December 2026 and December 2027. The current pricing and implied
margin over the relevant swap rate for these instruments is summarised in Table 7 below.
2
Fletcher Building Industries Limited is the issuer of the capital notes but they are guaranteed on an unsecured
subordinated basis by Fletcher Building.
Synlait Milk Limited – Independent Appraisal Report
Evaluation of the Fairness of the Shareholder Loan Page | 24
Table 7 Comparable Subordinated Instrument Pricing
Company Instrument
Value
Outstanding
Maturity Current Yield
Margin over
Swap
Fletcher Building Capital note $100m March-26 9.1% 4.0%
Fletcher Building Capital note $100m March-27 9.8% 4.0%
Fletcher Building Capital note $100m March-28 9.1% 4.6%
Infratil Infrastructure Bonds $120m Mar-26 7.2% 2.1%
Infratil Infrastructure Bonds $156m Dec-26 7.2% 2.3%
Infratil Infrastructure Bonds $102m Dec-27 6.9% 2.3%
Source: NZX, Northington Partners. As of 21 June 2024.
The average yield and margin for Fletcher Building’s capital notes are 9.3% and 4.5% respectively,
while Infratil’s infrastructure bonds are currently yielding 7.1% with an average margin of 2.2%. This
compares to the Shareholder Loan with a fixed interest rate of 8.0% for 12 months and an implied
margin of 2.6% over the current 1-year swap rate of 5.4%. The margin reduces to 1.6% if the
Shareholder Loan is extended at Synlait’s option.
Notwithstanding that the Shareholder Loan has a second ranking security, we would consider the
overall credit quality of the Fletcher Building capital notes and Infratil infrastructure bonds to be far
superior to that of the Shareholder Loan. This reflects:
Fletcher Building has an investment grade rating of Baa3 (negative outlook) from Moody’s
Investors Service for its senior borrowings, a current market capitalisation of over $2 billion
and a current total debt (including capital notes) leverage ratio of 1.8x;
Infratil is unrated but its assets include large infrastructure assets including One NZ (formerly
Vodafone), Manawa, Wellington Airport and CDC Data Centres. These assets have strong
credit characteristics including stable, more predictable cash flows. The appropriate margins
for Infratil infrastructure bonds should be much lower than we would expect for the
Shareholder Loan; and
Synlait does not have a credit rating but given its current level of financial distress, we would
suggest that it would likely be rated as speculative grade with a high chance of default.
5.1.4. Pricing Conclusion
Based on the available evidence, we conclude that the interest rate proposed for the Shareholder Loan
is much lower than the likely cost of alternative funding sources (assuming alternatives would be
available at all).
5.2. Other Key Terms of the Shareholder Loan
The Shareholder Loan includes terms which we consider are favourable to Synlait, relative to both the
existing senior facilities and the likely terms for alternative funding. This view reflects the following:
The Shareholder Loan has no financial covenants and does not place any obligations on
Synlait outside of ordinary terms expected for a subordinated instrument of this nature;
Synlait only has an obligation to repay the principal amount of the Shareholder Loan at
maturity if the Company is in a position to do so without breaching the senior financial
covenants and while still satisfying its solvency obligations. Therefore, while the headline
maturity is 12 months with an option at Synlait’s election to extend by a further 12 months
(subject to certain conditions), the Shareholder Loan has an indefinite maturity in
circumstances where repayment would breach senior financial covenants or the solvency test;
and
Similarly, interest payments can be deferred and capitalised in situations where payment
would breach senior financial covenants or solvency requirements.
We believe that the majority of the terms above are concessionary and are therefore fair to Synlait
shareholders other than Bright.
Synlait Milk Limited – Independent Appraisal Report
Evaluation of the Fairness of the Shareholder Loan Page | 25
For as long as Bright owns not more than 50% of Synlait, the Shareholder Loan also includes an “Event
of Review” if an independent director (as defined in the NZX Listing Rules) is appointed to the board of
Synlait in circumstances where that appointment has not been supported by Bright. This would trigger
a 60-day negotiation period and if Bright is still not satisfied with the appointment, then Bright has an
ability to require repayment of the Shareholder Loan on 60 days’ notice.
While we understand this feature of the Shareholder Loan was a concession by Synlait to satisfy Bright
requirements, we don’t believe that it confers any undue influence to Bright for t he following reasons:
Synlait will still be required to satisfy the NZX Listing Rules which stipulate that at least 2
directors are independent and 2 directors must be ordinarily resident in New Zealand;
Bright directors will not be able to vote on board resolutions concerning the Shareholder Loan
where they are “interested” in the transaction under the Companies Act 1993, including for
instance, decisions on whether to extend the Shareholder Loan; and
Even in the circumstances where Bright might demand repayment following an Event of
Review and negotiation period, repayment would only be possible if Synlait was in a position
to do so (i.e. the senior lenders allow repayment).
5.3. Immediate Financial Implications of the Shareholder Loan
The Shareholder Loan has no immediate impact on Synlait’s overall debt position because it will be
used to repay a portion of the existing senior bank debt. It does however provide critical liquidity to
satisfy Synlait’s $130 million bank repayment obligation by 15 July 2024 and provide time to advance
other recapitalisation priorities including the proposed Equity Raising.
Given the Shareholder Loan is subordinated to Synlait’s senior lenders, the bank will exclude the loan
from its assessment of the senior leverage ratio (senior debt to EBITDA) which is a key financial
covenant (see Section 4.2). However, given Synlait’s EBITDA is so depressed (expected to be towards
the lower end of FY24 guidance of $45 - $60m), both the total and senior leverage ratios are expected
to be well above covenant levels at the FY24 reporting period.
The impact on total and senior debt levels and leverage ratios post the Shareholder Loan are illustrated
in Figure 8 below based on Synlait’s 1H24 debt position and $50 million of assumed EBITDA for FY24
(relative to guidance of $45 - $60 million).
Figure 8: Synlait Debt Structure as of 31 January 2024
Source: Northington Partners based on Synlait debt at 31 January 2024 and assumed FY24 EBITDA of $50 million.
Figure 8 demonstrates that the Shareholder Loan will have no immediate impact on Synlait’s overall
debt position or total leverage ratio but will improve its senior leverage ratio from 8.2x to 5.6x, albeit still
well above current covenant levels (2.25x at FY24).
$180m$180m
-
$130m
$410m
$280m
31-Jan-24Proforma Post
Shareholder Loan
Unsecured Subordinated BondsShareholder LoanSenior Secured Lending
Higher
Ranking
Lower
Ranking
Senior Leverage Ratio: 8.2x
Total Leverage Ratio: 11.8x
5.6x
11.8x
Synlait Milk Limited – Independent Appraisal Report
Evaluation of the Fairness of the Shareholder Loan Page | 26
5.4. Potential Future Financial Implications
As set out previously, implementation of the Shareholder Loan represents Stage 1 of a broader
recapitalisation plan and is not sufficient to reduce Synlait’s current debt position to sustainable levels.
As announced by the Company and detailed in the Notice of Meeting, Synlait also intends to launch the
Equity Raising with Bright’s support and refinance the current bank facilities.
Synlait will clearly be seeking to recapitalise the Company sufficiently through the Equity Raising to
meet its short-term obligations, but also to reduce debt to a level that can be sustained at expected
medium-term earnings levels and is sufficient to receive the support of the banks for the refinancing.
We therefore expect the size of the Equity Raising will be material and, given its size, will be contingent
on shareholder approval to be considered at a separate special shareholder meeting.
In addition, depending on the size of the Equity Raising and the success of on-going measures to
improve earnings performance, Synlait may continue to pursue other strategic initiatives to reduce debt,
with likely options including the sale of the North Island assets and Dairyworks.
5.5. Voting Outcomes of the Shareholder Meeting
Bright is not able to vote on the resolution relating to the Shareholder Loan, meaning approval will
require majority support of the remaining Synlait shareholders who vote. Given a2MC control 19.8% of
the shares of Synlait, they will be highly influential in determining the outcome of the resolution to
approve the Shareholder Loan. As of the date of this report, a2MC and Synlait have engaged in
discussions but a2MC has not indicated how it intends to vote. If Synlait is advised how a2MC intends
to vote, it will update shareholders on the status of a2MC’s voting intentions by way of a market
announcement.
5.6. Potential Consequences of the Shareholder Loan Not Being Approved
In the event that the Shareholder Loan is not approved and implemented in accordance with the
proposed timeline, the Company will not have access to sufficient funding to meet the 15 July 2024
$130 million bank loan repayment obligation and would be in default to the banks. Unless the banks
agree to alternative arrangements, the most likely outcome in a default situation would be for the
Company or the banking syndicate to immediately initiate a formal insolvency process. This may
involve the appointment of a voluntary administrator or receiver to take control of the Company. In turn,
an insolvency event is also an “Event of Default” in relation to the Subordinated Bonds, at which point
they also become immediately due and repayable.
Receivership is an insolvency process aimed at protecting the position of secured creditors, who have
general or specific charges or security over the Company’s assets. The receiver’s role would be to take
control of the Company’s assets to generate proceeds, either through continued operation or the
realisation of assets, which can then be used to repay the secured creditors. The specific asset
management strategy that the receiver pursues will depend on the receiver’s view of which course is
likely to result in the best value outcome for the secured creditor that appointed them. In this instance, a
likely scenario is that a receiver would attempt to accelerate cash generation through an orderly
realisation of Synlait’s assets. In this context, the receiver has a duty to get the best price reasonably
obtainable at the time of sale.
In contrast, a voluntary administrator is appointed by the Directors of Synlait with the objective of
maximising the chances of the Company (or as much as possible of its business) continuing to operate
or, where that is not possible, generating a better return for the Company’s creditors and shareholders
than would result from an immediate liquidation of the Company. Voluntary administration has some
benefits over receivership in that it provides temporary relief from creditor action (typically 20 working
days) to provide time for the administrator to assess the Company’s options with an objective of
providing a better return than may be available to both creditors and shareholders from an immediate
liquidation. However, secured creditors that have a right to appoint a receiver may do so despite the
appointment of administrators in which case the receiver would take priority.
The ultimate outcome for shareholders under any insolvency process is highly uncertain and we do not
consider that approval of the Shareholder Loan would disadvantage shareholders. Furthermore,
shareholders are likely to have the ability to consider this as a viable option at the shareholder meeting
to approve any Equity Raising (i.e. shareholders will likely have the ability to assess the merits of
Synlait Milk Limited – Independent Appraisal Report
Evaluation of the Fairness of the Shareholder Loan Page | 27
liquidation, administration or receivership at the special shareholder meeting to approve the Equity
Raising).
5.7. Summary of our Assessment of the Shareholder Loan
In our opinion, after having regard to all relevant factors, we consider that the Shareholder Loan pricing
and terms are fair to the Non-associated Shareholders. Moreover, the terms are likely to be more
favourable than what would be available on arms-length commercial terms from an independent third-
party lender.
The Shareholder Loan is now the only option available to Synlait to repay the $130 million of bank debt
due on 15 July 2024, and thereby avoid the significant consequences that would otherwise arise. In
effect, the Shareholder Loan provides the Company with the time needed to progress Synlait’s other
deleveraging plans, including the proposed Equity Raising and bank refinancing. Non-associated
Shareholders will have an opportunity to reconsider their options at that time.
Synlait Milk Limited – Independent Appraisal Report
Appendix 1: Sources of Information Used in this Report Page | 28
Appendix 1. Sources of Information Used in this Report
Other than the information sources referenced directly in the body of the report, this assessment is reliant on the
following sources of information:
Synlait’s annual and interim reports and investor presentations.
Discussions with senior personnel of Synlait and its advisers.
Documentation for the Shareholder Loan including the initial loan term sheet and final loan agreement.
Drafts of the Special Notice of Meeting to approve the Shareholder Loan.
Synlait’s FY24 and FY25 budget.
Various other documents that we considered necessary for the purposes of our analysis.
Synlait Milk Limited – Independent Appraisal Report
Appendix 2: Declarations, Qualifications and Consents Page | 29
Appendix 2. Declarations, Qualifications and Consents
Declarations
This report is dated 25 June 2024 and has been prepared by Northington Partners at the request of the
independent directors of Synlait to fulfil the requirements of the NZX in relation to the Shareholder Loan. This
report, or any part of it, should not be reproduced or used for any other purpose. Northington Partners specifically
disclaims any obligation or liability to any party whatsoever in the event that this report is supplied or applied for any
purpose other than that for which it is intended.
Prior drafts of this report were provided to Synlait for review and discussion. Although minor factual changes to the
report were made after the release of the first draft, there were no changes to our methodology, analysis, or
conclusions.
This report is provided for the benefit of all of the shareholders of Synlait (other than Bright) that are being asked to
consider approval of the Shareholder Loan, and Northington Partners consents to the distribution of this report to
those people.
Our engagement terms did not contain any term which materially restricted the scope of our work.
Qualifications
Northington Partners provides an independent corporate advisory service to companies operating throughout New
Zealand. The company specialises in mergers and acquisitions, capital raising support, expert opinions, financial
instrument valuations, and business and share valuations. Northington Partners is retained by a mix of publicly
listed companies, substantial privately held companies, and state-owned enterprises.
The individuals responsible for preparing this report are Greg Anderson B.Com, M.Com (Hons), Ph.D and Jonathan
Burke B.Com (Hons), BCM. Each individual has a wealth of experience in providing independent advice to clients
relating to the value of business assets and equity instruments, as well as the choice of appropriate financial
structures and governance issues.
Northington Partners has been responsible for the preparation of numerous independent reports in relation to
takeovers, mergers, and a range of other transactions subject to the Takeovers Code and NZX Listing Rules.
Independence
Other than other independent roles with Synlait, Northington Partners has not been previously engaged by Synlait
or (to the best of our knowledge) by any other party to the Shareholder Loan in relation to any matter for the
Shareholder Loan that could affect our independence. None of the Directors or employees of Northington Partners
have any other relationship with any of the directors or substantial security holders of Bright.
The preparation of this independent report will be Northington Partners’ only involvement in relation to the
Shareholder Loan. Northington Partners will be paid a fixed fee for its services which is in no way contingent on the
outcome of our analysis or the content of our report.
Northington Partners does not have any conflict of interest that could affect its ability to provide an unbiased report.
Disclaimer and Restrictions on the Scope of Our Work
In preparing this report, Northington Partners has relied on information provided by Synlait. Northington Partners
has not performed anything in the nature of an audit of that information, and does not express any opinion on the
reliability, accuracy, or completeness of the information provided to us and upon which we have relied.
Northington Partners has used the provided information on the basis that it is true and accurate in material respects
and not misleading by reason of omission or otherwise. Accordingly, neither Northington Partners nor its directors,
employees or agents, accept any responsibility or liability for any such information being inaccurate, incomplete,
unreliable or not soundly based or for any errors in the analysis, statements and opinions provided in this report
resulting directly or indirectly from any such circumstances or from any assumptions upon which this report is based
proving unjustified.
We reserve the right, but will be under no obligation, to review or amend our report if any additional information
which was in existence on the date of this report was not brought to our attention, or subsequently comes to light.
Synlait Milk Limited – Independent Appraisal Report
Appendix 2: Declarations, Qualifications and Consents Page | 30
Indemnity
Synlait has agreed to indemnify Northington Partners (to the maximum extent permitted by law) for all claims,
proceedings, damages, losses (including consequential losses), fines, penalties, costs, charges and expenses
(including legal fees and disbursements) suffered or incurred by Northington Partners in relation to the preparation
of this report, except to the extent resulting from any act or omission of Northington Partners finally determined by a
New Zealand Court of competent jurisdiction to constitute negligence or bad faith by Northington Partners.
Synlait has also agreed to promptly fund Northington Partners for its reasonable costs and expenses (including
legal fees and expenses) in dealing with such claims or proceedings upon presentation by Northington Partners of
the relevant invoices.
Registered Office
1028 Heslerton Road
Rakaia, RD13
New Zealand
+64 3 373 3000
info@synlait.com
synlait.com
Auditor
PricewaterhouseCoopers
PwC Centre Level 4
60 Cashel Street
PO Box 13244
Christchurch 8013
New Zealand
Lawyers
Bell Gully
Deloitte Centre / Bell Gully Building
1 Queen Street / 40 Lady Elizabeth Lane
Auckland / Wellington
New Zealand
Share registrar
Computershare Investor Services Limited
Private Bag 92119 Auckland 1142
Level 2 159 Hurstmere Rd
Takapuna
Auckland 0622
New Zealand
0800 650 034 / +64 9 488 8777
enquiry@computershare.co.nz
Further information online
Our Annual and Interim Reports, all our core governance
documents (including our constitution, some of our key
policies and charters), our investor relations policies and
all our announcements can be viewed on our website:
www.synlait.com/investors/
DIRECTORY
B CORP
TM
CERTIFIED
Synlait’s commitment to elevating people and planet to the
same level as profit was recognised in June 2020 when it
became part of the B Corp
TM
community.
B Corp
TM
is a community of leaders driving a global
movement of people using business as a force for good.
Certified B Corporations
TM
consider the impact of
their decisions on their workers, customers, suppliers,
community, and the environment.
B Corp
TM
resonates strongly with Synlait’s purpose of
Doing Milk Differently For A Healthier World.
SYNLAIT 2024 NOTICE OF SPECIAL SHAREHOLDERS’ MEETING
57
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.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- ATM — The a2 Milk Company Limited: Synlait Special Shareholders’ Meeting update2024-08-27
“Synlait Milk Limited · 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand · +643 373 3000 · www.synlait.com NZX: SML ASX: SM1 28 August 2024 Synlait receives notice of complaint Synlait Milk Limited (Synlait) advises that it has received a notice of complain…”
- ATM — The a2 Milk Company Limited: Synlait Special Shareholders’ Meeting update2024-09-05
“Synlait Milk Limited · 1028 Heslerton Road, RD13 Rakaia, Canterbury, New Zealand · +643 373 3000 · www.synlait.com NZX: SML ASX: SM1 6 September 2024 Synlait confirms complaint dismissed Synlait Milk Limited (Synlait) advises that NZ RegCo and the Takeovers Panel hav…”