After a series of profit warnings, Synlait Milk has missed a debt repayment deadline under the New Zealand dairy company’s loan agreements.
Synlait requested before the market opened that its shares and bonds be suspended from trading today (28 March), the day when the company was obliged to make a payment of NZ$130m ($77.7m).
The “prepayment of at least NZ$130m” was required under Synlait’s “syndicated banking facilities”, according to notice published by the New Zealand Stock Exchange on behalf of the dairy business.
“[Synlait] has requested a trading halt of its ordinary shares and quoted bonds to provide it with additional time to finalise separate discussions with its banking syndicate regarding an extension to the $130 million prepayment obligation,” the notice read.
At the same time, Synlait wants to approach China’s Bright Dairy “regarding the provision of financial support” ahead of the next trading day on 2 April, when markets reopen again after the four-day Easter weekend.
Bright Dairy is Synlait’s largest shareholder, with 39% of the company’s shares, according to the dairy business’ investor relations website page.
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Synlait is also due to issue its half-year results on 2 April for the six months ended 31 January, another reason it cited for the delay in making the debt repayment and the halt to trading today.
In February, however, Synlait issued yet another profit warning ahead of those results. It said then that the business was expected to post a net loss after tax of NZ$17-21m, citing increased financing and operational costs, as well as lower margins at its ingredient and advanced nutrition divisions.
Those two business elements were at the heart of Synlait’s new strategy focus announced in September 2022. And reiterated again in June this year, when the company said it planned to sell the Dairyworks and Talbot Forest cheeses businesses in order to hone in on higher margin and value-added areas in advanced nutrition and foodservice.
“The board and management are actively working on the need to deleverage Synlait’s balance sheet as a priority,” the company said when it announced the profit warning in February.
That aspect cropped up again today, as the stock-exchange notice included a sentence on Synlait’s “plans to deleverage its balance sheet”, along with the mention of the in-process proposed sale of Dairyworks.
Synlait said the company hopes to provide a pre-open market update on 2 April, with “information in relation to the outcome of discussions with its banking syndicate and Bright Dairy”.
Its financial results next week may throw more light on a contract and pricing spat that Synlait has been embroiled in with its second-largest shareholder, The A2 Milk Co., a dairy peer also based in New Zealand.
The dispute stretches back to last year when A2 Milk cancelled an exclusive supply contract in which Synlait provided dairy and infant-formula products and ingredients.
An arbitration process emerged over the contract dispute last October, which has yet to be resolved, before rolling into a pricing spat in December.
