Synlait still plans expansion despite slow equity raising process

Mid-Canterbury milk processor Synlait admits its $100 million equity drive has slowed, but it still has plans to double capacity by 2011.

Earlier this year Synlait chief executive John Penno speculated that the company would not have difficulties raising the funds it needed to build a second large drier at its Dunsandel factory.

The factory held its official opening in February after a bumper season. Then it had forward supply contracts to grow production to 300 million litres and a second large drier would double its processing capacity to 550 million litres.

Synlait chairman Graeme Milne admitted investment interest had waned during the year with plummeting milk commodity prices hammering all facets of the industry hard.

“It’s no secret. This year has been tough with dairying gone down and then coming back up,” Mr Milne told NBR.

“Things have been a little more protracted than we would have liked.”

However, he said plans are still in place to grow capacity.

Synlait already has planning consent to build a second large drier and associated buildings at its site. To be ready for peak milk flow at the beginning of the 2011/12 season, construction would have to start early next year.

Dairy industry commentator Tony Baldwin said there is still time for the company to raise the cash required before it needed to look at other options.

Former Federated Farmers dairy chairman Frank Brenmuhl said Synlait could be taking a “wait and see” stance until its giant competitor Fonterra has sorted out its capital restructuring.

He said new equity could be used to develop the plant’s capacity, but it could also be used to expand the company’s own dairy herd and farm developments to increase milk supply certainty.

Mr Brenmuhl said some larger Canterbury corporate farmers could be interested in exiting Fonterra to supply Synlait if they felt there was risk to the share price dropping – speculation that could also give Synlait thought to pause.

Farmers could cash their shares in Fonterra now and reinvest in Synlait or on their own farms to increase production.

Part of Fonterra’s restructuring plans would see a lower revaluation of the share price, although the company said the actual price would be held at its current $4.52 value until the lower price caught up.

The lower price would reflect that the shares could only be traded among the limited pool of Fonterra suppliers.

Mr Milne said Synlait was still talking to “interested parties” and would make an announcement when the time was right.

While Synlait is not publicly listed, shares can be traded, handled by Christchurch accountant Polson Higgs.

Share prices on trade have dropped from up to $2.65 a year ago to $1.50 now.