A lack of confidence in under-pressure Synlait could have a major impact on the company’s future, an Ashburton farmer says.
Synlait announced in its recent market update statement that a significant number of farmer suppliers are handing in cessation notices.
“Synlait isn’t like Fonterra, where they have a bucket load of suppliers, so this may have some serious consequences,” Ashburton-based farm owner and Synlait supplier Willy Leferink said.
Leferink said the company would have to find the “sweet spot” where suppliers would stay.
Synlait has declared maintaining the milk supply a “critical priority.”
The company suggests that the cessation notices from farmers may be a strategic move to keep their options open rather than a definitive intention to exit the company and align with other processors.
“We strongly believe that Synlait presents an excellent value proposition to farmers, with our best-in-class Lead with Pride programme and attractive speciality milk premiums, stand out features,” Synlait chief executive Grant Watson said in the statement.
The company, which announced a $96 million loss in April, currently holds $500 million in debt following significant investments, including a $280 million manufacturing plant at Pokeno, a $125 million investment in their Dunsandel plant, and the acquisition of the dairy companies Talbot Cheese and Dairy Works.
Synlait has tried unsuccessfully to sell Dairy Works. It has now withdrawn it from the market and is conducting a strategic review of its North Island assets.
“When trying to sell, when you are on your knees, you aren’t in a strong position,” Leferink said,
“In a situation like this, are normally on the back foot and don’t come out of it well.”
The company said farmers have signalled they want to see Synlait’s balance sheet deleveraged, a sentiment Leferink agrees with.
“A lot of farmers are worried about not being part of a co-op.
“In the end, you are an unsecured creditor to the dairy company, which can be serious.
“So people want to see some surety that they will get their balance sheet right again.”
In order to meet debt repayment obligations to senior lenders, the company announced a deal with Bright Star Dairy, a Chinese company with a 39.01% shareholding in Synlait.
The deal would see Bright Star provide a $130 million loan subject to NZX rules and shareholder approval.
The loan would enable Synlait to meet its repayment obligations by the due date of July 15.
“We are grateful for the support from Bright Dairy,” Synlait chairperson George Adams said.
“We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan and the future equity raise will enable Synlait to reduce its debt to a sustainable level.”
By Claire Inkson
