Bank deadline gave SFF too little time for other offers 2 Oct 2015
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
- Government Widens Drought Assistance News
- NZ home sales creep up in March, still subdued Property
- NZ economy expands at fastest pace in two years Business
Bank deadline gave SFF too little time for other offers
By Jonathan Underhill
Oct. 2 (BusinessDesk) - Silver Fern Farms ran out of time to consider alternatives to a 50-50 joint venture with Shanghai Maling Aquarius, because of the looming deadline for its debt facility with a banking syndicate and the risk that lenders would withdraw support and tip the meat company into receivership if the deal isn't consummated, Grant Samuel says.
The independent appraisal of Shanghai Maling's $261 million investment proposal concludes that the terms and conditions are fair and the per-share value of $2.84 falls within Grant Samuel's valuation range of $2.56 to $3.03.
Yet the report also indicates the banks ran out of patience with SFF, having set a target for the meat company to reduce debt by more than $100 million through the introduction of new capital. Debt jumped in 2012 with the cost of rebuilding SFF's Te Aroha plant, the debt-funded build-up of working capital after weaker lamb demand led to a "significant" build up of inventory, a poor financial result from the sheep business because of lower demand and high farm gate costs, and a strong kiwi dollar.
While net debt reached $386 million by Sept. 30, 2013, SFF and its lenders were more rattled by the seasonal peak debt, which blew out to $550 million in early 2014, making them "increasingly alert to the financial risk the company was exposed to."
As a result SFF embarked on a strategic review that ultimately led to the Shanghai Maling offer, but Grant Samuel notes that the company was making progress in strengthening its balance sheet. Net debt fell to $287 million in 2014 and was forecast drop further to $148 million in the 2015 year and to just $88.7 million by September 2016, although the seasonal peak would still reach $333 million that year.
Earnings before interest and tax are forecast to rise to $71 million in 2016 from a forecast $39.9 million in 2015. Gearing would shrink to 18 percent in 2016 from 55 percent in 2013.
"As a result of an improved financial performance and other strategic initiatives, SFF has achieved a degree of deleveraging over the last two years and it is arguable that given time it will be able to achieve a more conservative capital structure without the need for new capital," Grant Samuel says.
The risk of adverse circumstances such as receivership or liquidation if lenders withdrew their support meant the Shanghai Maling proposal was reasonable on these grounds alone, Grant Samuel said. The Chinese deal would achieve recapitalisation, remove uncertainty, create new opportunities for growth and "is strongly supported by the board of SFF and the banking syndicate," it said.
An alternative funding proposal from a group of New Zealand agribusiness companies to underwrite a rights issue for between $40 million and $50 million was rejected by SFF's bankers and Grant Samuel notes that "the time frame to arrange alternative debt finance, in light of the pending expiration of the current facility on 31 October, became too tight."
The advisory firm says the capital investment from Shangai Maling "is excess to the current requirements of the company."
The deal proposed by Shanghai Maling and unanimously supported by the SFF board also allows the cooperative and its members to be looked after as their interest in the meat company shrinks to 50 percent. The total deal actually values the business at $311 million plus $7 million to meet the cooperative's directors' fees and governance costs into the future, $50 million available for distribution and $7 million estimated transaction costs.
The banking syndicate, which is led by Westpac Banking Corp, last month agreed to provide SFF with transitional banking facilities that will tide the company over until the Shanghai Maling deal settles. If shareholders don't approve the deal at their Oct. 16 special meeting, "the future of SFF Co-op will be uncertain," Grant Samuel says.
The transitional debt could also be voided by the resignation of key SFF executives, failure to reach milestones in the capital raising process agreed with the lenders, the transaction being turned down by the Overseas Investment Office, or Shanghai Maling backing out.
The notice of meeting for this month's special meeting also includes a resolution from shareholders Allan Richardson and John Cochrane for a detailed examination of a merger with Alliance Group before other options are considered. They oppose the Chinese deal and say farmers will lose control of the value chain and become price takers.
The SFF board recommends shareholders vote against that resolution, saying talks with Alliance over an extended period had failed to result in a merger proposal, the rival's chairman was on record saying there were sound commercial reasons why a merger wasn't realistic and that Alliance had been invited to participate in the formal new capital process.
(BusinessDesk)
News
Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students
29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more
New Zealand reaffirms support for Flight MH17 judicial process
7 Mar 2020 News
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more
Business
NZ Government's Economic package to fight COVID-19
17 Mar 2020 Business News
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more
NZ Government announces aviation relief package
19 Mar 2020 Business News
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more
Living
Diversity was Key at New Zealand Trade Tasting in London
6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall.
It was the first... more
Kiwi author stuns Behind the Butterfly Gate
12 Jan 2022 Arts
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...
New Zealand writer Merryn Corcoran’s... more
Property
Fairer rules for tenants and landlords
17 Nov 2019 Property
17 NOVEMBER 2019
The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more
New Zealand Government will not implement a Capital Gains Tax
17 Apr 2019 Property
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more
Migration
Boosting border security with electronic travel authority – now over 500,000 issued
19 Nov 2019 Migration
19 NOVEMBER 2019
We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more
Christchurch reinstated as refugee settlement location
18 Aug 2018 Migration
18 AUGUST 2018
HON IAIN LEES-GALLOWAY
The announcement that Christchurch can once again be a settlement location for refugees... more
Travel
Gallipoli Anzac Day services cancelled
19 Mar 2020 Travel & Tourism
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more
New Zealanders advised not to travel overseas
19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas
more
Sport
The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners
27 Oct 2019 Cricket
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more
PREVIEW: All Blacks v England semi-final
26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more
Columns
Gordon Campbell on the Gareth Morgan crusade
11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade
First published on Werewolf
The ghastly likes of Marine Le Pen in France and Geert ... more
Gordon Campbell on the US election outcome
10 Nov 2016 Opinion
Column - Gordon Campbell
Gordon Campbell on the US election outcome
Well um.. on the bright side, there (probably)... more
Kiwi Success
Congratulations to Loder Cup winner
26 Sep 2018 People
25 SEPTEMBER 2018
The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more
Appointments to New Zealand National Commission for UNESCO
16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO
HON JENNY SALESA
Associate Education Minister Jenny Salesa is... more
Recruitment
Historic pay equity settlement for education support workers
14 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more
Historic pay equity settlement for education support workers
22 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more