Tuesday 02 May 2017 by FIIG Research ripples_on_water Company updates

Mackay Sugar update following grower meeting

Mackay Sugar held a grower meeting on 26 April 2017 to further discuss the recommendations out of the Kidder Williams report

Image source: Mackay Sugar

Mackay Sugar’s (MS) management and Kidder Williams (KW) presented to growers with a specific focus on the advice to implement the mill improvement charge and how KW came about it. The presentation (available hereExternal link - opens in a new window) also reiterated the advice from KW’s original report:

  • Debt is close to double the industry average and the mills need significant capex to restore performance
  • MS needs circa $140m to reduce debt and to fund capex
  • Funds will need to come from asset sales and growers
  • A full sale is unlikely as the equity valuation is estimated to be too low for growers to retain control.

It has been reported that, following the meeting, MS and Canegrowers Mackay (an industry body) have sent out surveys to gauge what growers believe should be done. The Daily Mercury reports the MS survey gives two options; would growers prefer to implement the core plan including the sale of cogen and the $2 levy, or to sell further assets/the sale of the business as a whole.

The board will have to make the final decision but if the response reflected a shift towards the sale of the company, it would require a 75% majority shareholder vote at an emergency general meeting to ratify it.

The Canegrowers survey is reported to have four questions, one about the sale of MS and three about the levy.

The results of both surveys will be known by mid May.

As previously highlightedExternal link - opens in a new window, the company has a significant tangible asset base which should, in most scenarios, cover debt liabilities. However, if MS is unable to get support from its senior lenders or have growers agree to increase the levy or is unable to achieve timely asset sales- there is potential that the repayment of the unsecured notes could be delayed from the final maturity date of 5 April 2018.

Progress update

  • Discuss changes to the cane supply agreement. Survey released to growers– due back mid May
  • Continue the sale process for cogeneration – preparation stage nearly complete
  • Continue discussion with Mossman growers regarding the sale of the Mossman Mill – process has commenced
  • Investigate other restructuring options

We will continue to have regular meetings with MS, and the company will also continue to post updates to its website.

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