Olam International

As if enough crap has not hits the roof, ex-MD of Temasek Hldgs advised Temasek to sell Olam instead.
Is there a consipracy between the hedge funds to really make Temasek pay for their profits?


Olam Plunges After Dee Calls for Share Sale: Singapore Mover
By Michelle Yun - Dec 5, 2012

Olam International Ltd. (OLAM), the commodity trader that Muddy Waters LLC said may fail, slumped to the lowest in three and a half years in Singapore, after Michael Dee, a former senior managing director at Temasek Holdings Pte, called for the company to sell stock.

Shares in the world’s second-largest rice trader fell as much as 5.9 percent before trading 5 percent lower at S$1.44, set for the lowest close since April 1, 2009, as of 12:15 p.m. local time. Dee said Olam’s Temasek-backed debt and warrant sale announced this week is an expensive way to raise money.

“Olam made a strategic error in saying equity was not needed until 2015. It needs equity now,’” said Dee, who worked at Temasek from 2008 to 2010, in an article published in Singapore’s Business Times newspaper. Dee joined Temasek after serving as the Southeast Asia chief executive officer for Morgan Stanley.

Olam, also one of the three largest coffee traders, announced the sale of as much as $1.25 billion of bonds and warrants to existing shareholders this week. The offer will address “lingering doubts,” according to Olam CEO Sunny Verghese, which was sparked by Muddy Waters claim that the company is at risk of collapse.

“The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn’t need,” said Dee. “Muddy Waters is not the issue here, it is Olam’s strategic and financial decisions that have brought this situation to a head.”

Bond Offer
The company will offer $750 million in bonds and as much as $500 million in warrants and Temasek agreed to buy any rights not taken up by other investors, Olam said. Temasek, which holds 16 percent of Olam according to data compiled by Bloomberg, “made its own independent assessment” before deciding to back the sale, it said in a separate statement on Dec. 4.

“It’s definitely expensive debt to raise,” said Vincent Fernando, an analyst at Religare Capital Markets in Singapore. “It sort of highlighted fears that were raised by Muddy Waters in terms of the company needing capital. A few days before it seems like the company indicated it was not needed. I think this is where it has backfired a bit.”

Olam has enough capital for the next 12 to 18 months even if it’s unable to raise money from the capital markets, Anantharaman Shekhar, an executive director at Olam, said Nov. 28.

http://www.bloomberg.com/news/2012-12-06...mover.html

(06-12-2012, 10:17 AM)jovialger Wrote: 2) Raise equity, not more debt. Olam made a strategic error in saying equity was not needed until 2015. It needs equity now. Its net gearing of 248 per cent is well in excess of industry norms and the US$750 million new debt makes matters worse and adds USD/SGD foreign exchange risk to boot. Olam should cancel the egregiously expensive debt issue and execute a meaningful equity rights offering giving the KC Group, Temasek and management the opportunity to take up rights that are unsubscribed, if any. This will underpin Olam's equity capital while demonstrating the commitment of its largest shareholders and management. Selling 13 per cent debt with at-the-money warrants is a sign of desperation.

Why is rights offering preferred? Wouldn't that dilute shareholders?

After covering their short positions, they will long and say something otherwise. Short or long , they make monies.

One question; If we purchase Olam share at this level, 1.44/1.445 and do not want to take up the bonds and warrants, do we get diluted in value ofour holding ?
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Technically no, until the warrant is converted. You probably will be able to sell the rights.

But the catch is this: if the equity does not trade above the strike price, you are unlikely to be a happy shareholder and it is but academic pyrrhic victory for you not to be diluted. So despite the academic black scholes discussion, the reality is EXISTING share holders will prefer to get diluted rather than not, in a distressed situation. Similar reason for the US financial detachable warrants structure.

The irony of calculating the NETT cost of the debt issue (as per Michael Dee and another forumer) is this: assuming Olam goes to 0.50 and the warrants essentially becomes worthless (except time value of course), then the debt suddenly doesn't seem that expensive after all. This is the caveat to consider when we do derived values.

(06-12-2012, 04:11 PM)specuvestor Wrote: [color=#0000CD][b]
Technically no, until the warrant is converted. You probably will be able to sell the rights.

But the catch is this: if the equity does not trade above the strike price, you are unlikely to be a happy shareholder and it is but academic pyrrhic victory for you not to be diluted. So despite the academic black scholes discussion, the reality is EXISTING share holders will prefer to get diluted rather than not, in a distressed situation. Similar reason for the US financial detachable warrants structure.

The irony of calculating the NETT cost of the debt issue (as per Michael Dee and another forumer) is this: assuming Olam goes to 0.50 and the warrants essentially becomes worthless (except time value of course), then the debt suddenly doesn't seem that expensive after all. This is the caveat to consider when we do derived values.

The ratio of bonds and warrant are very odd, it creates odd lots for most shareholders, it discourages potential buyers from buying . Am I right to say this ?

^^ possibly, I've noticed that as well. Sometimes when we see pattern more than badminton it may indicate more considerations than just the pure numbers, so we have to read between the lines on what are the parties thinking and incentives.

There seems to be some misunderstanding, perhaps because of the complexity of the rights issue that Olam is announcing.

arthur Wrote:As if enough crap has not hits the roof, ex-MD of Temasek Hldgs advised Temasek to sell Olam instead.

Michael Dee did not say Temasek should sell its Olam shares. He said that Olam should sell shares i.e. do a rights issue of new shares, instead of a rights issue of debt + warrants.

kichialo Wrote:Why is rights offering preferred? Wouldn't that dilute shareholders?

A rights offering does NOT dilute shareholders because they can either take up their pro-rata share of the rights, or they can sell their entitlements in the open market. A placement IS dilutive because existing shareholders cannot participate.

The odd lots will only make Temasek end up with more bonds and warrants , believe many small retail investors will not take up and Temasek will take it all.

(06-12-2012, 04:39 PM)d.o.g. Wrote: There seems to be some misunderstanding, perhaps because of the complexity of the rights issue that Olam is announcing.

arthur Wrote:As if enough crap has not hits the roof, ex-MD of Temasek Hldgs advised Temasek to sell Olam instead.

Michael Dee did not say Temasek should sell its Olam shares. He said that Olam should sell shares i.e. do a rights issue of new shares, instead of a rights issue of debt + warrants.

Ah.. my apologies to all. This is getting too confusing to read to me.

(06-12-2012, 04:11 PM)specuvestor Wrote: The irony of calculating the NETT cost of the debt issue (as per Michael Dee and another forumer) is this: assuming Olam goes to 0.50 and the warrants essentially becomes worthless (except time value of course), then the debt suddenly doesn't seem that expensive after all. This is the caveat to consider when we do derived values.

Can some kind souls help me understand when Michael Dee talks about true cost of 13%, whose 'cost' is this? Cost incurred by Olam, and paid to shareholders? Hmm...

If (and this is a big 'if') everyone subscribes (i.e. no dilution) whatever "cost" incurred by Olam would be paid to shareholders, well, except for the bankers' fees. If shareholders choose to sell the warrants, he will get paid for the dilution, or if the warrants expire worthless, no one exercises, there is no dilution. Again, what 'cost' is there, and whose cost? Isn't this a left pocket / right pocket situation (which Dee mentioned, and I thought it contradicts his own argument of high costs).