The equity raising consists of $180m underwritten placement and a follow-up $20m share purchase plan, $70m of which will be needed for the new manufacturing facilities.
Much of the offering has already been committed by major shareholders Bright Dairy and A2 Milk Company, to a total of $114m.
Synlait also wants to strengthen its balance sheet because of covid-19 uncertainties, which have caused it to downgrade its guidance for FY2021 because of slower infant formula sales.
It said net profits in the first half would be significantly lower than the previous corresponding period and the company didn’t expect to better the FY2020 full-year result.
The projected changes in the balance sheet following the placement show net debt, including IFRS 16 leases, coming down from $546m to $346m.
The leverage ratio (net debt divided by earnings) would come down from three-point-two times to two times.
In comments about the offer, Synlait said the structure allows almost all existing eligible shareholders the opportunity to achieve their pro rata portion of the equity raising.
The placement price of $5.10 is a 14% discount to the last trading price of November 9 of $5.93, before a share trading halt was called.
The placement is about 17% of the market capitalisation on November 9.
Synlait and its advisors expected the book build for the placement to be completed by 1pm on November 11 when the trading halt would be lifted and the new shares would begin trading a week later.
The underwritten placement, compared to a more protracted rights issue, should give Synlait and its bankers a quick result for new equity.
It is exchanging some short-term debt for shares issued at a discounted price versus the share price trading history in recent months.
Synlait’s directors appear to be winding up the building and expansion phase that has been funded by retained earnings, bonds and loans since the previous capital raise in 2016.
Bright has 39% of Synlait and A2 19.8%, while 14 of the top 20 shareholders are institutions.
Former chief executive and current director John Penno is a 2.8% shareholder and along with the other New Zealand resident directors – chairs Graeme Milne, Ruth Richardson, Bill Roest and Sam Knowles – he has committed to support the latest equity raising.
Shares on issue will go up from 179m to 218m, a 22% increase.
Synlait shares spent the first three months of the past year (November 2019 to January 2020) around $9 before falling below $5 in late March.
The price then rallied to sit around $7 from April to August and has since drifted down to between $5 and $6.
The placement price of $5.10 looks attractive, although Synlait has not yet paid a dividend while reinvesting all profits back into expansion.
