Embattled dairy company Synlait Milk has got the backing of its shareholders for a large loan that has secured its near term survival.

Its minority shareholders voted overwhelmingly at a special meeting in favour of a $130 million loan from its Chinese major shareholder, Bright Dairy, to allow it repay loans to its banks due on Monday.

Final voting figures showed 99.6 percent backing for the loan arrangement, which runs for 12 months with an 8 percent interest rate.

The vote had seemed in the balance until Synlait’s second largest shareholder, and also its biggest customer, A2 Milk, said it would back the proposal despite reservations.

Asked by a shareholder how the company had got into its predicament, Synlait chairperson George Adams said it had borrowed about $400m to expand and diversify into consumer goods and new plants in the North Island.

“The company spent money that was borrowed and didn’t have the performance particularly around 2021/22/23 to justify the level of commitment around non-performing assets.”

Covid and the falling Chinese birth rate had exacerbated Synlait’s problems, Adams said.

New money

Adams said the company could now get on with a capital raising through the sale of new shares, which was likely to be “several hundred million dollars” but would avoid the need to sell assets. Details would be released next month, but the matter was complicated and needed to be fair to all.

“We have a complex relationship with two major shareholders, which we’ve got to resolve to ensure we can deliver an equity raise … we’ve also got to take into account the volatility of our share price and bond price.”

That should also help convince Synlait milk suppliers to withdraw their notices to leave the company, who had made it clear they wanted improved advanced payments that match other dairy companies, he said.

Bright Dairy director Julia Zhu said it was committed to Synlait in the long term.

“There is a stronger, healthier future for the business coming and Bright Dairy is deeply committed to ensuring the Synlait’s long-term success for all shareholders and its farmer suppliers.”

The loan will secure Synlait’s immediate future, but it has a $180m bond repayment due at the end of the year.

Adams refuted a shareholder suggestion Synlait’s relationship with A2 Milk was acrimonious, despite the pair currently being in arbitration over a contract dispute.

“We have actually a very good relationship … But could the relationship be stronger? And the answer to that is yes. It absolutely should and could.”