(Yicai) Aug. 21 -- Chinese dairy giant Bright Dairy & Food will inject NZD185 million (USD113.5 million) into its New Zealand subsidiary Synlait Milk, which is a leading infant formula and other dairy product maker, to consolidate control over the unit and help defuse the debt crisis.

Bright Dairy will subscribe to 308,333,333 new shares issued by Synlait Milk at a price of NZD0.60 (USD0.40) each, the Shanghai-based company said yesterday. The price is a 100 percent premium on the stock’s closing price in Auckland on Aug. 15. The transaction will almost double the size of Bright Dairy’s holdings to 74.7 percent from 39 percent.

This is on top of NZD130 million worth of loans that Bright Daily handed out to the subsidiary, in which it is the majority shareholder, in June to help it repay bank loans that were due to mature soon.

A2 Milk, Synlait Milk’s second biggest shareholder, has also offered NZD32.8 million (USD20.1 million), which means Synlait Milk could secure up to NZD217.8 million worth of financing this time round. Synlait Milk is scheduled to hold an extraordinary shareholder meeting on Sept. 18 to decide whether to accept both financing schemes.

Synlait Milk has premium milk sources, world-class dairy product processing bases, and a string of major clients, Bright Dairy said. The investment, made when the Canterbury-based firm's share price is low, can help Bright Dairy realize absolute control of the unit so as to defuse the debt crisis and help it return to profit as soon as possible, it added.

The proposed cash injection saw Synlait Milk’s share price [ASX:SM1] jump 3.5 percent to close at AUD0.43 (USD0.29) in Sydney and its New Zealand-traded stock [NZX:SML] surged 16.4 percent to finish at NZD0.46 (USD0.28). Bright Dairy’s share price [SHA:600597], meanwhile, closed down 2.2 percent at CNY7.79 (USD1.10) apiece.

Bright Dairy bought into Synlait Milk, New Zealand’s third biggest dairy producer, in 2010. Business was good and the company went public in New Zealand in 2013 and in Australia in 2016. However, in 2021, Synlait Milk started to lose money, affected by the surging price of raw milk and a big jump in shipping costs. The loss has continued to widen and accrued debts have increased. It has also begun to weigh on Bright Dairy's business performance in recent years.

As of May 31, Synlait Milk’s debts amounted to 57.6 percent of its total assets at CNY4.3 billion (USD602.7 million), Bright Dairy said yesterday. In the first five months, it logged net losses of CNY94.4 million (USD13.2 million) on revenue of CNY330 million. And last year it haemorrhaged CNY296 million (USD41.5 million) on revenue of CNY736 million (USD103 million).

Editor: Kim Taylor