Dairy company Synlait is in a desperate fight for survival. Photo: Eiliv Aceron for Unsplash
Debt laden dairy company Synlait Milk will raise close to $218 million from its two main shareholders to preserve its future.
It revealed details of its desperately needed equity raise after the close of markets on Tuesday night.
Synlait's two major shareholders have committed to pay well above its recent market price to ensure its survival.
Major shareholder Bright Dairy of China will supply the bulk of the money, $185m, buying new shares at 60 cents each - double the recent market price. That would lift its stake to just over 65 percent.
Meanwhile Synlait's major customer A2 Milk will invest nearly $33m, at 43 cents a share, a 43 percent premium to the recent price, preserving the size of its near 20 percent stake.
Synlait chair George Adams said the company's future depended on the deal being approved.
"If the resolutions are not passed, it's likely Synlait would need to cease trading and initiate a formal insolvency process," Adams said.
The proposal, which excludes any participation from other shareholders, had been carefully thought through and was Synlait's best option, he said.
"The selected equity raise structure provides the greatest certainty of reducing Synlait's debt in the shortest timeframe and at a more favourable price than alternative structures."
The proposal is conditional on Synlait refinancing its bank debt, and settling its dispute with A2 Milk.
Bright Dairy and A2 Milk cannot vote to approve the share issue to themselves, but have committed to supporting the issue to the other party.
An independent report said the share raising proposal was better than the alternatives and ultimately in the interests of the other minority shareholders.
Synlait managed a crucial debt payment after Bright Dairy agreed to pay $130m, and has just reached a conditional settlement with A2 Milk over a disputed supply and manufacturing contract for infant formula.
