Synlait Farms Limited (SNLF)

[Armillary Private Capital]

Synlait Farms now in a trading halt:

http://www.unlisted.co.nz/uPublic/un...cement_id=2282

[FarmerHamilton]

Synlait Farms now in a trading halt:

http://www.unlisted.co.nz/uPublic/un...cement_id=2282

This is very interesting.

I am hoping for a capital raise from a new cornerstone shareholder at somewhere north of $1.80 for maybe a 20% stake.

Can't see it being a rights issue ... existing holders unlikely to pour further funds in at these prices ( certainly not me !! )

They may be entertaining a complete takeover of the company ....

They might be entering into a contract to purchase a bunch of other farms ( some of the Dairy Holdings portfolio possibly ) with associated capital raising.

Might be moving to the NZX with associated IPO capital raising ...

All will be revealed before the end of the week !!

[CJ]

FH - do they need more capital or only if new farms are involved?

Given their isn't a liquid market to determine the true market value, any share placement or rights issue (unless deeply discounted) is problematic.

[FarmerHamilton]

FH - do they need more capital or only if new farms are involved?

Given their isn't a liquid market to determine the true market value, any share placement or rights issue (unless deeply discounted) is problematic.

With an $8++ payout they will certainly generate plenty of cash over the next 12 months ... so a capital injection with the current asset base is not urgent but the gearing is certainly not sustainable should payouts drop below $6 for a sustained period.

Knowing the team like I do I would think a capital raising within 90-95% of NAV would be a minimum and with the unknown value of the water rights they have and the potential value to be unlocked there they may want over 100% ...

My $1.80 may be a bit light as with land values and cow prices at present and a BOOM year of potentially a $8.50 type payout it is certainly a sellers market ( for the first time in a long time !! )

[CJ]

With an $8++ payout they will certainly generate plenty of cash over the next 12 months ... so a capital injection with the current asset base is not urgent but the gearing is certainly not sustainable should payouts drop below $6 for a sustained period.

Knowing the team like I do I would think a capital raising within 90-95% of NAV would be a minimum and with the unknown value of the water rights they have and the potential value to be unlocked there they may want over 100% ...

My $1.80 may be a bit light as with land values and cow prices at present and a BOOM year of potentially a $8.50 type payout it is certainly a sellers market ( for the first time in a long time !! )

A pro-rate rights issues can still be done at a deep discount without disadvantaging shareholders since it is pro-rata (difficulty only if unable to take up and the rights are non-transferable).

[FarmerHamilton]

I would be very very surprised if it is a rights issue ... you would see some selling pressure in Synlait Milk shares if that was the announcement as alot of the big holders in Farms would need to sell some Milk shares to take up their entitlements.

[CJ]

I would be very very surprised if it is a rights issue ... you would see some selling pressure in Synlait Milk shares if that was the announcement as alot of the big holders in Farms would need to sell some Milk shares to take up their entitlements.

Good point - technically completely separate companies now but inextricably linked.

[FarmerHamilton]

Agreed , but the top 50 shareholders in each probably have at least 25 names in common ...

[zigzag]

I think some of the current holders would struggle with a pro-rata rights issue, and there isn't a ready market to unload excess rights, not a liquid market anyway. More likely a cornerstone shareholder, or a placement, with maybe a smaller amount for current holders. I wouldn't mind picking up a few, just so that I could call myself a Queen Street Farmer.

[FarmerHamilton]

I think some of the current holders would struggle with a pro-rata rights issue, and there isn't a ready market to unload excess rights, not a liquid market anyway. More likely a cornerstone shareholder, or a placement, with maybe a smaller amount for current holders. I wouldn't mind picking up a few, just so that I could call myself a Queen Street Farmer.

I agree , I think it will more likely be an exit mechanism for existing holders near N.A.V. rather than a request for more capital from them. Likelihood of a new cornerstone shareholder is pretty high , both have been high priority for the board for quite a while and especially now Synlait Milk is completely separate and trading so well.