Good news in threes for Synlait

AUCKLAND: Synlait Milk’s capital raising completes a successful trifecta for the dairy processor.

The placement follows the resolution earlier this month of a longrunning legal dispute and the signing of a large customer for its new plant at Pokeno.

The new, asyetunnamed client goes a long way towards resolving Synlait’s key issue — its overreliance on a2 Milk.

News that Synlait had settled a land covenant dispute, also centring on its Pokeno factory site, resulting in its share price rallying sharply.

Canterburybased Synlait said the placement was strongly supported, attracting bids well over the $180 million sought. A $20 million share purchase plan will follow.

Synlait was put on a trading halt while placement took place.

When trade resumed, the stock rallied by 18c to $5.58, and well above its placement offer price of $5.10.

The capitalraising strengthens Synlait’s balance sheet and paves the way for a $70 million investment processing and packaging equipment to service its new, multinational customer.

‘‘The announcement [of a new customer] went a big way towards solving their strategic problem, which was an overreliance on a2 Milk, who will remain a sizeable customer for the foreseeable future,’’ Craigs Investment Partners analyst Stephen Ridgewell said.

He said a capitalraising had been on the cards since early in the year, when it was becoming clear that Synlait was getting caught in a2 Milk’s downdraft as that company encountered problems in the unofficial AustraliaChina daigou channel.

Mr Ridgewell expected to see more ‘‘bolton’’ deals from Synlait.

‘‘It’s going a long way towards solving that overcapacity issue, which has become more apparent as a2 Milk made it clear that they wanted to diversify their supply arrangements away from Synlait.’’

Chief executive Leon Clement said he was pleased to see the three key issues resolved.

‘‘They are all material developments in our evolution but I don’t think it’s the end of the story,’’ he said.

The new customer would go a long way towards filling Synlait’s new Pokeno factory, he said.

Nutritional products made for the new customer would include some plantbased product.

‘‘We built Pokeno with the intention of putting a significant customer in there who would add value to us.’’

Both Synlait and a2 Milk have been making moves to become less reliant on each other.

To that end, a2 milk is in the process of buying Mataura Valley Milk for $270 million, enabling it to make it own infant formula. — The New Zealand Herald