Synlait IPO sours

BY ALAN WOOD

Synlait Milk's plans for a $150 million float on the NZX by Christmas have been deferred due to lack of support, but could be resurrected in 2010.

Canterbury-based Synlait had been looking to raise the extra funds from local and international institutions and Kiwi retail brokerages to enable it to double its milk processing facilities.

Without the extra funds, Synlait's plan to start a factory expansion in July have been thrown into doubt, though managing director John Penno said the decision had "quite a long time frame".

Some in the market called the deferred float a major setback for a relatively young company.

Synlait yesterday signalled it had widened its options to include private capital placements to investors.

This could involve Synlait's existing 22.5 per cent Japanese shareholder Mitsui.

Talks have been underway with some parties, but a float is still preferred.

While Synlait is thought to favour the first quarter of 2010 for a resurrected float, some in the market say the second half of next year is more likely.

It is understood that retail brokers were hesitant about some of the recent pricing details being put forward under the IPO.

Penno said institutions had been pretty supportive, but not all retail brokers had given backing to the offer (led by First NZ Capital).

"You only get one chance to do these things, and we want to do everything properly. When it was clear it wasn't shaping up in quite the right way, we decided to pull back," Penno said.

"It's fair to say with some retail brokers there was a lot of support and [with] others it was disappointing . . .

"I guess what we've learnt from the process is that we've got to give people a little more time and explain the model more thoroughly, potentially to help the interested retail parties make their choices," Penno said.

Hamilton Hindin Greene director Grant Williamson director said a future float might prove difficult.

"I thought with retail investors, this would be something that would catch their imagination. They can't get exposure to the dairy sector in many forms of investment in New Zealand . . . ," Williamson said.

"It makes it even harder once you fail once. It makes it tough to bring something like that back to the market."

Penno said it was too early to talk about timing for a resurrected float or whether its size might change.

When asked about the company's parallel strategy to instead raise the funds by multiple capital placements, Penno said: "There are parties who we've been talking to for quite long periods of time, and we'll give them more close consideration now."

Auckland-based financial commentator Brian Gaynor said he was disappointed that Synlait had been caught out by factors including alternative capital raisings.

Synlait was also something of an unknown quantity, particularly to the retail brokers, Gaynor said. "When there is capital available, it tends to go to places people feel comfortable with."

NZX markets development manager Geoff Brown said one factor in the deferral had been competing floats and offers from existing listed companies.

There had been more than $6 billion of capital and debt raising on the NZX in 2009, Brown said.

"I think this one is more about process and timing, than it is about the company's product."

 

* Synlait was founded by John Penno and North Island farmers Ben Dingle and Juliet Maclean.

* It had its beginning back to 2000 when the three joined to buy the 600ha Robindale farm at Te Pirita, near the Rakaia River.

* By April 2005 Synlait had an interest in assets of about $80m, and supplied Fonterra.

* In recent years Synlait invested more than $105m in processing assets, and started pumping out its own milk products in August 2008.

* In February 2009 Prime Minister John Key officially opened the Synlait plant.

* Synlait's land, cow and factory assets total about $400m including 13 farms.

* A planned second dryer could almost double the size of the existing factory base, which is forecast to produce 50,000 tonnes in the July 2010 year. --------------------

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