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Synlait Ltd investors may sell 19m shares into Synlait Milk IPO

UPDATED Bright Dairy will not participate in the sale, according to Synlait Milk's prospectus.

Wed, 11 Jul 2018

Shareholders of Synlait Ltd may sell 19 million shares of Synlait Milk as part of the dairy company's initial public offering but Bright Dairy will not participate in the sale, according to Synlait Milk's prospectus.

The Rakaia-based Synlait Milk will raise about $120 million from the IPO, of which $75 million will come from new shares and the remaining $45 million from a selldown by Synlait Ltd investors, who include Japan's Mitsui & Co and Synlait Milk chief executive John Penno.

The share sale will be "the first significant liquidity event" for Synlait Ltd shareholders, some of whom had been investors since 2000 without getting dividends and with limited ability to exit, Mr Penno told BusinessDesk.

Mr Penno is selling "a very small proportion" of his holding, while Mitsui will keep its stake unchanged. The capital raising will provide Synlait Milk with sufficient capital for its expansion plans and he does not expect it to come back to the market any time soon.

Synlait Milk is 51 percent owned by China's Bright Dairy & Food Co and 49 percent by Synlait Ltd. After the IPO, Bright Dairy's holding would fall to between 38.5 percent and 40.7 percent and the holding of Synlait Ltd investors would drop from 24.2 percent to 25.6 percent. New shareholders are expected to own between 33.7 percent and 37.3 percent.

Will stay unchanged

Bright Dairy's shares would be unchanged at 57.2 million, while the Synlait Ltd shareholders reduce to 36 million. Total shares on issue jump to between 140.6 million and 148.8 million from 112.3 million currently. The actual split will depend on how many shares the Synlait Ltd investors sell.

Synlait Milk has sought NZX waivers for what it calls "non-standard governance arrangements" relating to Bright Dairy, which would allow the Chinese company to appoint four of a maximum eight directors. Bright's appointees will not be required to retire by rotation and have a majority of votes.

The arrangements apply as long as Bright Dairy's stake remains between 37 percent and 50 percent.

Mr Penno says the arrangements are to allow Bright Dairy to continue to consolidate Synlait Milk into its own financial statements as it can with the current 51 percent holding.

The indicative price range for the stock if $2.05 to $2.65, giving the company a market value of between $305 million and $372.5 million, and an indicative enterprise value of $375.5 million to $442.8 million. The institutional offer and bookbuild is to be held on July 8 and July 9 with trading expected to begin on July 23.

Mr Penno saysit is not a given that the company will be eligible to join the NZX 50 Index because it will depend how the NZX classifies Synlait Milk's cornerstone shareholdings.

The $75 million raised is to be used to repay debt and help fund construction of a new lactoferrin extraction and purification facility, an on-site blending and consumer packaging plant, a new dry store, a quality testing laboratory, a butter plant and a new spray dryer, according to the prospectus.

The company is forecasting strong sales growth this year and in 2014. Sales are forecast at $426.4 million in 2013, up from 2012's $376.8 million, and for 2014 sales are forecast to rise to $524.4 million. Underlying earnings before interest and tax are forecast to almost double this year to $26.9 million and rise to $32.1 million in 2014.

Synlait Milk, which operates the largest purpose-built infant formula plant in the southern hemisphere, said in May it would spend $15 million to expand production of lactoferrin as a spray dried powder to pharmaceutical standards.

Then company's manufacturing site at Dunsandel currently has the capacity to process about 550 million litres of milk into 95,000 metric tonnes of products a year.


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Synlait Ltd investors may sell 19m shares into Synlait Milk IPO