SML - Synlait Milk Ltd

[Beagle]

http://nzx-prod-s7fsd7f98s.s3-websit...423/308215.pdf

Perfect timing for the aggrieved party to seek an injunction, assuming they want this to stay fully adversarial...

[JimmyTrade]

http://nzx-prod-s7fsd7f98s.s3-websit...423/308215.pdf

Perfect timing for the aggrieved party to seek an injunction, assuming they want this to stay fully adversarial...

Good to see some of the engineers made the photograph..

Its been a challenging commissioning.

[Beagle]

https://www.nzherald.co.nz/business/...ectid=12270326

[peat]

there is a huge amount of downside for SML
the way I read that is they might be told to deconstruct. If the convenant defines the limited functions and the covenant is valid?
How ironic that a Chinese person is calling for right of law in NZ.

[Beagle]

Yes, massive potential downside in a worst case scenario and the company is so highly geared its extremely unlikely they could build elsewhere within their existing financial capabilities so the prospect of a capital raise is very real. Will anyone at board or management level fall on their sword and be accountable if this all turns to custard ? or are shareholders simply asked to accept a write-off that could potentially exceed their total profits over the last 6 years and accept that the board and management have exercised prudent risk management and they simply got "unlucky" I think its the latter and if so then this is uninvest-able as governance is appalling. D Day is coming and I think Synlait are making a very good job of mimicking a possum in the headlights and simply hoping for the best.
Hope is a great business plan right ?

[Beagle]

https://www.stuff.co.nz/business/far...roposed-quarry
Looks very unlikely to be settled before this goes to oral submissions to the Supreme Court on whether an appeal is allowed on 21 October.
Synlait shareholders will be hoping their companies QC is an extremely good orator and can make a truly compelling oral argument.

If the Supreme court decide not to hear an appeal or if Synlait lose in due course after the Supreme Court allows one then the next move will surely be an injunction against Synlait operating their facility and then Synlait are so incredibly vulnerable they are at the complete mercy of their neighbour.
I would think they could then be effectively legally greenmailed into making a massive settlement or have to shift elsewhere.

What will then be interesting (if this all turns to custard) is if a single executive falls on their sword either at board or management level...I doubt it.

Fascinating case and I think Synlait are really in trouble here. Possible implications for ATM with getting enough product too.
Disc Don't own any SML or ATM at present.

[Baa_Baa]

Disc Don't own any SML or ATM at present.

You own both ATM and SML through your KFL holdings, unless you've sold KFL? ATM is 14% of KFL portfolio holding and A2 Milk holds 17.39% of Synlait through JBWere Nominees.

It does looks troublesome for SML but I think your doomsday scenario is less likely to eventuate than a settlement decided on by the court, seeing as how Synlait disclosed they have made a "reasonable" offer and ergo it is not accepted. Also interesting is what recourse SML have against being a buyer in good faith that turned out that the covenants were not dealt with.

[Ggcc]

https://www.stuff.co.nz/business/far...roposed-quarry
Looks very unlikely to be settled before this goes to oral submissions to the Supreme Court on whether an appeal is allowed on 21 October.
Synlait shareholders will be hoping their companies QC is an extremely good orator and can make a truly compelling oral argument.

If the Supreme court decide not to hear an appeal or if Synlait lose in due course after the Supreme Court allows one then the next move will surely be an injunction against Synlait operating their facility and then Synlait are so incredibly vulnerable they are at the complete mercy of their neighbour.
I would think they could then be effectively legally greenmailed into making a massive settlement or have to shift elsewhere.

What will then be interesting (if this all turns to custard) is if a single executive falls on their sword either at board or management level...I doubt it.

Fascinating case and I think Synlait are really in trouble here. Possible implications for ATM with getting enough product too.
Disc Don't own any SML or ATM at present.

Great post. However I feel that ATM IF might not be hit as hard for getting enough product. SML can focus purely on IF labelled in their Chinese export packets. I am sure that if they cannot supply the quota ATM needs, the supply of IF in English packaging sold by the Daigou, might be able to be supplied by somebody else like Fonterra. Of course that would take planning and not
Just done overnight. I do stress this is only my thought and not fact This would only be considered if SML can’t produce enough product for ATM. SML have the contract for export to China and no one else can supply unless SML breach their contract obligations.

[BlackPeter]

Great post. However I feel that ATM IF might not be hit as hard for getting enough product. SML can focus purely on IF labelled in their Chinese export packets. I am sure that if they cannot supply the quota ATM needs, the supply of IF in English packaging sold by the Daigou, might be able to be supplied by somebody else like Fonterra. Of course that would take planning and not
Just done overnight. I do stress this is only my thought and not fact This would only be considered if SML can’t produce enough product for ATM. SML have the contract for export to China and no one else can supply unless SML breach their contract obligations.

Couple of corrections / clarifications ...

1) SML, not ATM do own the IP for their infant formulas. Fonterra or any other manufacturer would only be allowed to produce these products if Synlait agrees (presumably against a licence fee or similar).

2) IF exported into China (not sure, though about Daigou channel) needs a Chinese import licence, which is specific for one manufacturer and one factory. This has nothing to do with any contract Synlait might have with ATM, but it is a Chinese regulatory requirement. Synlait's Dunsandel factory does have this licence to export their A2 formula to China. Anybody else producing the same formula (even Pokeno) would need to apply for a new Chinese licence - not easy.

Meaning: Synlait could still deliver all its A2 formula to China, even if Pokeno is shut down (given that only Dunsandel holds to the best of my knowledge the Chinese import licence), however - they clearly would have problems supplying all their other products and markets ...

[Ggcc]

Couple of corrections / clarifications ...

1) SML, not ATM do own the IP for their infant formulas. Fonterra or any other manufacturer would only be allowed to produce these products if Synlait agrees (presumably against a licence fee or similar).



2) IF exported into China (not sure, though about Daigou channel) needs a Chinese import licence, which is specific for one manufacturer and one factory. This has nothing to do with any contract Synlait might have with ATM, but it is a Chinese regulatory requirement. Synlait's Dunsandel factory does have this licence to export their A2 formula to China. Anybody else producing the same formula (even Pokeno) would need to apply for a new Chinese licence - not easy.

Meaning: Synlait could still deliver all its A2 formula to China, even if Pokeno is shut down (given that only Dunsandel holds to the best of my knowledge the Chinese import licence), however - they clearly would have problems supplying all their other products and markets ...

1. I agree but if SML can’t produce what ATM needs would they not be in breach of their contract to supply? Therefore breaking that contract.

2. Most IF is exported via Daigou is it not through Australian channels? This will change over time I am guessing. So if SML could not provide enough supply it would not matter where they get it from for the Australian market to export via Daigou.

I am aware as long as SML can provide no other company can manufacture to supply to China.