Quickfire deal secures Synlait's processing

26-07-2010 | Tim Fulton

It took Synlait just eight weeks to decide that $82m from Shanghai's Bright Dairy was the answer to its search for capital.

"We've got to know Bright very well and they've got to know us very well in the last few weeks. It's been an intense process", Synlait chairman Graeme Milne said at the company's Dunsandel factory last week.

The Canterbury-based processor is the latest New Zealand dairy processor to accept whole or partial foreign ownership, subject to approval from the Overseas Investment Office.

Listed on the Shanghai stock exchange, Bright is set for a 51% stake in Synlait so would logically expect a half share of any profit.

This situation plays to fears that yet another foreign investor is set to drain NZ of dairy proceeds.

But Synlait chief executive John Penno was anything but concerned.

"It's right in the sweet spot NZ's looking for, in terms of its relationship with China, particularly the potential of a Free Trade Agreement."

He also stressed that unlike the controversial Crafar receivership the Bright Dairy plan is based on ownership of industrial assets - not NZ farm land.

The partnership was also open to the possibility of a public share float "a few years down the path".

Still, it is intent on forging a strong, lasting link to Asian markets.

The reshaped Synlait wants to meet strong demand for infant milk formula on China's eastern seaboard -using Bright Dairy's position as the No.3 dairy processor in the country. The partly state-owned company describes itself as a leading supplier of fresh milk and operates the world's largest yoghurt plant.

The sound reputation of NZ product will be vital to marketing this business.

Yet in other ways the deal meets Synlait's very specific needs. It ends a search for money to build a second dryer at its single site- and gives it a crucial link into Chinese markets.

The $82m that Bright brings into play is not a staggering amount by NZ dairying standards. Synlait last year ditched plans for a public share float which it hoped would raise at least $150m.

Synlait hoped that an NZX listing would reduce debt, giving it impetus for expanding the Dunsandel factory. Bright Dairy offered more money than a listing would have generated, Synlait said last week.

Bright Dairy vice president Li Ke said it approached Synlait following a visit to a number of dairy businesses in NZ and Australia.

There had been rapid growth in demand in China for premium infant formula and other specialised milk powder from NZ and Australia, she said.

"Bright Dairy provides the capital and the market opportunities to assist Synlait Milk to drive its value-added proposition business."

The new board will comprise four directors each from Bright Dairy and Synlait Limited, the latter having the right to appoint the chairman.

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