Dangerous game to stare down bankers, warns SFF chairman
By Jonathan Underhill
Oct. 12 (BusinessDesk) - Silver Fern Farms chairman Rob Hewett says the company's banking syndicate has become tired of
its relationship and it would be "a dangerous game" to test lender support in the event farmer-shareholders don't
support selling a half stake to Shanghai Maling Aquarius this week.
Hewitt was responding to calls from shareholders opposed to the deal to look at alternative funding, which could keep
New Zealand's biggest meat company in local hands. The cooperative that now owns SFF would be showered in cash if the
Chinese deal goes ahead. As well as $261 million that would be injected into the business, leaving it debt free with
funds to upgrade plant and pursue global growth ambitions, the farmers will get a dividend of 30 cents a share, or $35
million, and the cooperative's board would get $7 million for its costs - enough to keep it going for seven years at
SFF shareholder John Cochrane last week floated an alternative plan to raise $90 million in a rights issue underwritten
by local agri-businesses, a strategy he claimed would cost the average farmer $25,000. But Hewitt said SFF didn't know
who was backing Cochrane's plan or what control they would demand in the event farmers didn't take up all their rights
to new shares.
"We would be entering a state of financial uncertainty in the event that this is voted down by shareholders," Hewitt
said. "For John to suggest we stare the banks down - it's a dangerous game."
Hewitt said while SFF had made progress repaying debt and improving the performance of the meat company, "the challenge
is we have a banking syndicate which is tired." The board agrees with lenders that the company needs to put some extra
equity into the business "and we're not confident we will get that amount of equity from existing shareholders."
Former SFF director Richard Somerville, another opponent of the sale, issued a statement over the weekend urging farmers
to reject the Shanghai Maling deal and not cede control of their company.
"PPCS (SFF’s previous name) was founded in an environment where UK interests dominated the NZ meat processing industry
at a significant cost to NZ suppliers," Somerville said. "Why would you take the risks of moving from one colonial
master to another?"
While Westpac Banking Corp and Rabobank are understood to be willing to continue to provide a debt facility to SFF, HSBC
and Commonwealth Bank of Australia are said to be less keen.
"The call for acceptance of the Shanghai Maling offer is not driven by debt but by the desire by two of the banking
syndicates wishing to exit their exposure to SFF," Somerville said. "We understand SFF has an offer from a reputable
bank to provide a facility to rank alongside Westpac and Rabo and take out the one, or possibly two, banks wishing to
exit and that this offer is conditional upon SFF raising new equity in the region of $80-$100 million." That would
require farmers to support a rights issue, he said.
Hewitt said shareholders shouldn't be concerned that under the deal Shanghai Maling's co-chair will get a casting vote
on governance issues, including the meat company's budget and appointment of the chief executive, saying the Chinese
company had insisted on this for its own accounting requirements in China and the venture would be "a genuine
partnership, straight down the middle."
He said if supplier shareholders were unhappy with the use of the casting vote, "they could withhold their livestock and
then the company is worthless."
Hewitt also defended the $7 million Shanghai Maling would contribute to the cooperative's board for governance costs
should the deal go ahead. The cooperative would still have a board of directors after the sale, although it wouldn't be
overseeing the company in the same way, with just a 50 percent holding. He said the co-op board would still have costs
including travel, running election processes every year and continuing with its governance development programmes. Based
on the current board costs, the $7 million would keep the board operating for seven years.
Wednesday Oct. 14 is the last day shareholders can lodge proxies and internet votes ahead of the Oct. 16 special meeting