Synlait well structured for a successful future

Synlait Milk’s $120 million capital raising will enable the company to restructure debt and invest in several new initiatives, including a lactoferrin plant, a third dryer, a butter plant, testing laboratory and dry store. The share offer is made up of $75 million of new capital and $45 million sell down by some of the exiting shareholders.

 

All the signs point to this capital raising being a success, unlike the attempt to raise $150 million in 2009 which was shunned by New Zealand investors.

 

Much has changed in four years. The New Zealand economy is now on a substantially stronger footing, Synlait has put runs on the board and a Chinese company, Bright Dairy, was willing to invest $82 million in the business. Synlait is well structured to avoid the angst about overseas investment because majority locally owned Synlait Ltd owns the farms separately from the milk business, with Japanese company Mitsui the minority shareholder.

 

This structure ensures there is no argument about the sale of New Zealand land to foreign investors which was such a large feature of the Crafar farms purchase by Peng Xin. It has ensured that Synlait is well placed to take advantage of the fast growing Chinese demand for infant milk formula as well as being exposed to other growth markets. The new capital investment programme will enable Synlait to move swiftly into higher growth products than its present bias towards whole and skimmed milk powder.

 

Synlait is obviously much smaller than Fonterra, but it is now in a position to offer public investors, both New Zealand and overseas, the chance to invest in our agricultural sector. There haven’t been too many opportunities to do this, let alone in the added value end of the market.

 

There seems to be a pattern here. Local entrepreneurs start up a new business which fails to attract New Zealand investment and, consequently, overseas capital is the default option. Alternatively a New Zealand company, for instance PGG Wrightson and F&P Appliances, needs external capital to ride out tough conditions and has to find it overseas.

 

In the case of companies that have got into trouble, the overseas investor soon takes control. But in Synlait’s case a good business model has made it possible to retain a strong New Zealand involvement. We might have preferred 100% ownership, but the events of 2009 made that impossible, and what we have now got is committed shareholding by a Chinese company which will assist expansion ambitions.

 

In my view Synlait meets all the criteria for overseas investment.

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One Response to “Synlait well structured for a successful future”

  1. Rural round-up | Homepaddock Says:

    […] Synlait well structured for a successful future – Allan Barber: […]

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