Shanghai Maling Aquarius – a Bright Foods subsidiary – would invest $260 million to form a 50/50 joint partnership withSilver Fern Farms:
Chairman Rob Hewett said the move, which he said would prove to be a “watershed” for both company and the meat industry, and would make Silver Fern debt free by the year’s end.
Silver Fern, a hybrid farmer-owned co-operative, has for several months been looking at its capital structure with a view to paying down debt.
A number of parties, both domestic and foreign, are understood to have looked at Silver Fern at some point after Silver Fern late last year hired Goldman Sachs to look at its options to raise up to $100 million.
The meat industry has for several years struggled with issues of overcapacity and competition for stock – made worse by a dwindling sheep population which has gone from a peak of 70.3 million in 1982 to 28.6 million today.
“A lot of money needs to be spent on Silver Fern Farms to make it efficient again,” said one analyst. “Many of the Silver Fern plants are at the high end in terms of operating costs.”
The industry suffers from overcapacity, much of it with Silver Fern Farms.
ANZ rural economist Con Williams said profitability in the sector had been poor for an extended period, which had hampered reinvestment, weakening profits and balance sheets. . .
It would be difficult for local investors to offer that much money and the ability to put the firm on a sound financial footing.
. . .The extent of the proposed Chinese commitment has made it more difficult for those Silver Fern Farms shareholders who want to keep control of their hybrid co-operative in NZ ownership to persuade their board, and more importantly the company’s bankers, to support other alternatives.
Herald inquiries reveal that sufficient support was earlier raised from a range of parties for a $40 million to $45 million underwrite for a rights issue to help recapitalise the company. But one of the parties – who wished to remain anonymous – said that did not go far enough for the co-operative’s banking syndicate. At least $70 million would be required and that would have flowed straight out the door to reduce debt.
It is understood other endeavours to find a “white knight” to ensure Silver Fern Farms remains majority-controlled by Kiwi interests have been pursued.
But the company is fast running up against a banking-imposed deadline to reduced its debt exposure. . .
It’s not just what the company owes now but the ability to pay the costs of getting rid of excess capacity and upgrading plants.
But it’s not just the cash investment either, the deal has the potential to give much better access to Chinese markets.
This is how the meat industry used to be – British companies owned freezing works to ensure access to meat.
Shareholders now have to decide whether they are prepared to let 50% of the company go in return for the significant investment by Shanghai Maling Aquarius.
And regardless of what some opposition politicians are saying, providing the offer satisfies the Overseas Investment Office, this is a matter for the board and shareholders not the government.