Chinese dairy float for NZX

Synlait Milk is an offshoot of Synlait Ltd. Photo / NZPA

Synlait's major shareholder will continue to appoint four directors despite diluted stake.

China's Bright Dairy will retain four seats on the eight-member Synlait Milk board, despite the likelihood it will lose its majority ownership status after the company's planned initial public offer and sharemarket float, which is planned for next month.

Synlait Milk sought, and received, NZX dispensation to keep the board's structure as it is, despite the prospect of its ownership falling to around 40 per cent, down from the current 51 per cent, as the result of the diluting effects of the share issue.

Canterbury-based Synlait Milk said it would seek to raise $75 million in new capital through the issue of shares in a $2.05 to $2.65 range. The company expects to list on the NZX on July 23.

The IPO and listing come at a time of intense interest in the milk powder and formula industry, and follow the successful launch of the Fonterra Shareholders Fund last November.

Chief executive John Penno said Bright Dairy had been consolidating Synlait Milk into its accounts, so an agreement had been reached to allow that to continue.

After the issue, Bright Dairy could continue to appoint four directors, one of which must be a New Zealand resident.

The board would comprise three independent directors and the board members would elect the managing director, which would then be ratified by the shareholders. The chairman, who would get the casting vote, would be independent.

Former Finance Minister Ruth Richardson is on the board at present, along with former Fletcher Building executive Bill Roest.

Penno said the composition of the board was not unusual, given Bright Dairy would still be a major shareholder with 40 per cent. "We think that we have got the balance just right," he told APNZ.

Penno said the $75 million in fresh capital would go towards projects over the next three years worth a total of $183 million, which he said would also be funded by debt and operating earnings.

"The infant formula market is growing very quickly, and what we are seeing here is that they [Chinese participants] are really turning their attention to New Zealand to be the supplier of high-quality products."

At the indicative price range, Synlait Milk would have a market capitalisation of $305 million to $372 million, the company said.

The offer documents point to strong earnings growth, with underlying earnings before interest and tax almost doubling from $13.5 million in the July 2012 year to $26.9 million in 2013 and $32.9 million in 2014.

Synlait Milk is an offshoot of Synlait Ltd, owned primarily by 100 or so New Zealand shareholders and 22.5 per cent by Japan's Mitsui.

Bright Dairy is listed on the Shanghai stock exchange with a market capitalisation of about US$3.5 billion.

Fresh offering

*Synlait Milk is seeking to raise $75 million in fresh capital.
*Initial public offering (IPO) to include $45 million share selldown.
*Bright Dairy ownership to reduce to 40 per cent from 51 per cent.