How will Synlait get out of its sticky mess? Photo / NZME
Cash-strapped Synlait Milk has won near-term support but without asset sales, the outlook is “very challenged”, Forsyth Barr senior analyst Matt Montgomerie said in a research note.
Montgomerie noted that Synlait’s net debt stood at $559m at the end of the half year to January 31.
This week, the infant formula and dairy ingredients company said its $130m debt repayment had been deferred to July 15, 2024.
The company has secured an additional $30m of short-term funding to June 27, 2024, and it has secured amendments to its 2024 shareholders’ funds and interest cover ratio covenants.
To repay the $300m of capital required over the coming eight months, Synlait has three options: (1) North Island Asset sale, (2) Dairyworks sale, and (3) equity raise, Montgomerie said.
“At this stage, a combination of Dairyworks [given indicative offers; asset value has been written down to $120m] and equity raise may not be sufficient.”
Meanwhile, investor jitters over Synlait were evident in its $180m worth of NZX-traded bonds.
The bonds, which fall due in December this year, hit a yield of 43.50 per cent.
New Zealand Super Fund’s chief investment officer (CIO) Stephen Gilmore is moving on to take up a role as CIO at Calpers - the largest pension plan in the United States which has US$494 billion in funds under management.
The role sounds like a big coup for Gilmore but could also prove a challenge. According to the Financial Times Gilmore’s two predecessors at the pension plan, Nicole Musicco and Ben Meng, stepped down within two years of becoming CIO amid lacklustre returns and political intervention.
The pension plan reported an annual return of 5.8 per cent in the 12 months ending June 2023 and a negative 6.1 per cent in the previous year. That was well below its 6.8 per cent target.
The NZ Super Fund has returned 9.79 per cent on average annually since it began investing in September 2003, and over the past decade has made 10.11 per cent on average.
Gilmore will manage more than 300 investment professionals at the pension fund. Gilmore’s departure follows that of CEO Matt Whineray who finished up with the fund in December, after 15 years with the organisation. Last month the fund appointed Jo Townsend as its next chief executive.
Townsend was previously the CEO of Funds SA for eight years, overseeing significant growth in the organisation’s capabilities which manages A$40b (NZ$43.5b) of public sector funds.
The Crown entity manages $70 billion. Gilmore leaves at the end of June and had been with the fund since early 2019.
The two-thirds owner of Fisher Funds, Taranaki-based Toi Foundation, has scotched a report in Australian media that it is seeking to quit its holding in the newly beefed-up KiwiSaver provider and funds manager.
The Weekend Australian reported that investment bank Macquarie had been contracted to broker a sale of Fisher Funds but cited only Fisher’s 34 per cent shareholder, global private equity firm TA Associates, as a seller.
In an email to BusinessDesk, Toi Foundation’s chief executive, Maria Ramsay, said the foundation “is not looking to sell its 66 per cent majority ownership stake in Fisher Funds”.
Fisher Funds was a deliberate long-term investment and remains a key investment for Toi Foundation Holdings Ltd (TFHL), the foundation’s strategic investment entity.
Toi also owns a minnow retail bank, TSB, as the investment arm of a charitable trust that previously owned the bank and now distributes dividends to public interest uses in the region.
The Weekend Australian reported that two other PE funds, US-based Blackstone and UK-based Permira, were considering investment in Fisher Funds.
Fisher Funds bulked up last year with the $310 million purchase of KiwiWealth, a KiwiSaver provider initially founded by economist and political activist Gareth Morgan, with funds under management of about $14 billion.
A former commerce minister and chief executive at TVNZ, Simon Power, took the reins of the merged entity earlier this year.
TA Associates, headquartered in the US, first bought into Fisher Funds in 2017, and the first reports of its desire to exit emerged in November of last year.
Fisher Funds Australian equities manager Robbie Urquhart says the internalisation of the management contract for Goodman Property Trust (GMT) is good news for investors.
“Normally we see M&A [merger and acquisitions] going in both directions - companies acquiring and ending up with Aussie divisions. This is interesting because it’s a separation of the New Zealand affiliate of Goodman Group in Australia.”
That vote went through overwhelmingly last week with over 99 per cent of unitholders voting in favour.
“The price seemed a bit full but strategically I think it’s a really interesting transaction.” Urquhart said GMT would be a more independent company as a result with the capacity to steer its own ship. As part of the deal Australian company Goodman Group has increased its share ownership of the trust - from around 25 per cent to 32 per cent.
“They are an interested party but will be an arms-length unit holder.”
In addition to that GMT is launching a property fund management business platform which means it will move from being a company which drives income from property management and development off its own balance sheet into a far more active growth property manager. Urqhart said that was an exciting move from an NZX perspective.
“When we think of trying to grow the range of investment opportunities for Kiwi investors - you can do that in a number of ways. You can increase the number of new companies coming to market - that obviously has been a tough place in the last few years.” Or you can grow it from existing companies.
GMT will put $100 million of its capital into the new fund and a further $200m will come from Goodman Group while it will seek the raise the rest from third parties as opportunities arise to invest. It will look to invest in the industrial space around Auckland. “You have gone from a traditional REIT [real estate investment trust] style - it’s done really well - but in doing this transaction they have increased the scope of growth the company has in front of them.” There is talk it will invest into datacentres - an area that Goodman Group has already expanded into in Australia.
Urquhart said there would be extra risk involved with building up the property funds management platform. “It’s going to come down to the ability of the management team to do that sensibly. But because they have been good custodians of capital in the past I think they are starting their journey on the front foot.”
He said the biggest downside was the cost of what GMT had paid Goodman Group for the internalisation. “But unitholders still voted that through - the conjecture that we have seen in the independent expert’s report would suggest it was reasonable to full - not massively expensive, but perhaps they could have got that a bit cheaper - but I think that is around the edges.”
After a weak February (down 1.1 per cent), the S&P/NZX50 index recovered nicely, being up 3.1 per cent in March.
However, the New Zealand sharemarket is lagging global peers with the index gaining just 2.84 per cent for the first quarter of 2024.
In contrast, America’s S&P500 was up 10.16 per cent and Australia’s ASX200 was up 4.03 per cent, investment research group Morningstar said in a report.
In its New Zealand Outlook, Morningstar said local equities remained dependent on economic conditions and interest-rate settings, and more so than other markets, given the NZX50′s lack of exposure to technology.
“While core inflation is easing, measures remain a long way from the desired 2 per cent,” it said.
“This places the economy in a required stage of continued underperformance relative to trend, to bring demand back into line with the economy’s capacity to meet it.
“Retail sales volumes have now contracted for eight quarters in a row and illustrate the adjustment from boom times to normality.”
Domestic inflation is receding at a slower rate than expected, while growth data showed a weaker economy in 2023.
“A conclusion from weaker growth over 2023 and more persistent inflation is that the productive capacity of the NZ economy is lower than previously assumed,” Morningstar said.
“Weak productivity undermines earnings. The earnings reporting season has proved to be lacklustre, with more downgrades featuring, with costs and weaker demand in commentary.
“There is building hope that the new Government’s approach to managing the economy will provide more solidity, and business sentiment has improved markedly, though that is not yet reflected in real economic variables.”
Migration continued to provide support, tourism has continued to recover, and farm sentiment is improving courtesy of higher dairy prices.
Infrastructure and healthcare remained long-term plays.
For earnings to improve in a lasting and solid trend fashion, though, the productive capacity of the economy and productivity would need to be raised.
-additional reporting BusinessDesk
Demand for bonds may well stay strong, but there's a catch.