Fran O'Sullivan: Co-op's bankers warrant questioning

Rob Hewett has admitted bankers prevented SFF from entertaining a competitive bid from NZ interests. Photo / ODT

Opposition politicians have attacked the Key Government for not providing financial assistance to recapitalise Silver Fern Farms. But they would be better directing their salvoes towards the company's bankers.

Silver Ferns Farms' bankers have made it clear that "funding is uncertain" if the company does not go with the Chinese bid, which will result in $261 million being injected into the company.

SFF chairman Rob Hewett admitted to a press conference that its bankers prevented the co-operative from entertaining a competitive bid from NZ interests at this stage.

The politicians have beaten up on the Government.

But SFF has not made a direct pitch to the Government, although Landcorp is understood to have been approached to be a party to a rival attempt by NZ interests to underwrite a capital-raising programme for the meat co-operative.

The other issue which the politicians have neglected is that SFF's banking syndicate has effectively frozen the co-operative from entertaining other bids, while the Shanghai Maling bid is on the table.

This has no doubt given the Chinese party the confidence to finalise its bid after months of negotiation in China and New Zealand.

The $261 million which the Chinese firm injected has been structured to wipe all Silver Fern Farms' long-term banking debt. Shanghai Maling will emerge with 50 per cent of the new SFF operating company.

It will also be entitled to 50 per cent of the new company's dividends thus diluting the amount available to SFF shareholders to 50 per cent.

Given that the new SFF operating company is expected to project future profits - of which Hewett says 50 per cent will be paid out in dividends - that may not be a bad thing.

But what is overlooked is that the new structure will result in a lesser amount for distribution to the New Zealand-based investors in SFF.

Although, as one player said informally - "it's good to get 50 per cent of a profit rather than 50 per cent of ..." - this is an angle which the rival bidders could play to gain an advantage.

But the bar the bankers have set is high.

While Wanaka-based businessman John Rodwell is saying the NZ group is looking to increase the level of underwriting to put forward an amended proposal, it would seem likely that it will not get over the line unless the bankers could be persuaded to accept it.

This could happen if SFF's shareholders do not vote in sufficient numbers to get 50 per cent support for the deal.

There will be niggles, nevertheless, as to whether the bankers are proving to be fair-weather friends when it comes to Kiwi control of New Zealand's agribusiness sector.

But the banks have stuck with the company to date.

There is no surety they will do so if the current bid is rejected.

Thus, any rival bid would need to get over a high hurdle to secure banking support.

The risk that SFF faces is competitive.

If the Chinese deal goes ahead, Alliance will promote itself as New Zealand's only 100 per cent farmer-owned red meat processor and try and win supply off SFF.