Olam International

(28-12-2012, 01:55 PM)specuvestor Wrote: Isn't temasek limited by their shareholding cannot exceed 30% including the warrants?

Temasek will not underwrite 100% of right issue since at least other major shareholder already commit to subscribe, so should not be an issue.

(28-12-2012, 04:31 PM)CityFarmer Wrote:

(28-12-2012, 01:55 PM)specuvestor Wrote: Isn't temasek limited by their shareholding cannot exceed 30% including the warrants?

Temasek will not underwrite 100% of right issue since at least other major shareholder already commit to subscribe, so should not be an issue.

Is that confirmed? Didn't d.o.g. just said the opposite?

(28-12-2012, 02:06 PM)zxiank Wrote: Heya, been following the forum but not created an account before this...

Got a question that my friends can't answer so I'm trying it here..

People are saying Olam's bond yield is high about >8%.. however, these are sort of academic projection based on formulas and perceived value of the warrants.

From a business point of view, I feel that this is not a bad deal. For the next few quarters until the bond matures, Olam is effectively paying only 6.75% interest. This is similar to what they are paying now (or might be even lower than their bank lines). The only time when they will feel a pinch is when the bond matures, and they need to cough back US$750mil, about $40mil more than what they actually collected. However, I feel the management can actually do a shares placement (depending on the market) to get money from the shareholders to "repay" them. It won't cost them as much as what people will think.

Is this a reasonable view? Of course, there's opportunity costs etc but in real terms, Olam is not losing that much.

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(27-12-2012, 03:35 PM)d.o.g. Wrote: The rights issue circular is out. Despite the Kewelram family publicly saying that they will support the rights issue, and a Straits Times article assuming Sunny Verghese will take up his share of the rights, both parties are conspicuously absent from the list of undertaking shareholders. Only Temasek, in the form of its subsidiaries Aranda and Breedens, has given an undertaking to take up its share of the rights. Aranda has also underwritten the entire rights issue.

We will have to wait until the rights issue is over, and announcements are made on changes in deemed interest, to see whether Sunny Verghese and the Kewelram family have put their money where their mouths are, or whether the rights issue has all along been merely a disguised placement to Temasek.

I thought for this circular it is actually about granting Aranda underwriting fees.. There isn't a requirement for Sunny or Kewelram family to state their undertaking interest here. Also, Temasek is aggressively buying shares now, if it is really a disguised placement to Temasek, Temasek won't need to go through so much trouble to get even more shares from the market...

Hi zxiank.. .this is what I wrote previously on the cost of debt from the company's perspective:

(06-12-2012, 04:11 PM)specuvestor Wrote: 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 ?

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.

(07-12-2012, 12:49 AM)specuvestor Wrote:

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(06-12-2012, 06:33 PM)AlphaQuant Wrote:

(06-12-2012, 05:26 PM)wee Wrote: 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).

ya it's quite funny cos it's not a share placement (if it is a share placement, the shareholder should ask for as high a price for placement since the dilution will happen regardless)

on the one hand, the yield to maturity for the whole package for a shareholder is pretty nice (>13% if u can sell the rights and hold to maturity assuming no bankruptcy and ability to pay coupons)

on the other hand, if the company can only raise capital at an effective rate of >13% (if i remember correctly, Olam claims Temasek approached them with the deal - if they don;t need to capital badly couldn't they have gotten a better deal?), then the cost to the shareholder will be an inability to generate returns in excess of costs, resulting in a tanking of share price. so make 13% but lose >13% in share price?

but then this is really just a poker game in reality - at this stage establishing stability and confidence and preventing a run on the bank is more important to Olam than valuation and what not.

It is quite a difficult question to answer if we go into details. Michael Dee arrive at 13% by adding the YTM of the bond with the black scholes valuation of the warrants. This is deemed as the price that market is willing to pay to fund Olam. But this may be an overstatement since Temasek seems keen to take it all up, which he himself admits as an early Christmas sale of the century. If it is that toxic, probably it wouldn't be a present

HOWEVER from a company's perspective, their cost is the YTM of the bond and the POSSIBILITY of being diluted at around 1.50 strike. If the warrant expires worthless (which i said is a pyrrhic victory for shareholders) the cost is just the 8% YTM. Question therefore is what is the intrinsic value of the firm, since this is a value forum? Price to book? It is obvious that I'm not a believer of CAPM cost of equity model that relies on volatility/ beta and price action statistics.

(28-12-2012, 05:52 PM)specuvestor Wrote: Hi zxiank.. .this is what I wrote previously on the cost of debt from the company's perspective:

Hi specuvestor.. yes, we shared the same view and in fact, it can potentially cost Olam just 6.75% annually if they really do an equity placement to repay the bond when it matures. It become shareholders paying back shareholders.. and it sort of help them buy time, raising equity in the future should be a better deal than raising it now with the shares price so low.

(28-12-2012, 05:52 PM)specuvestor Wrote:

(28-12-2012, 04:31 PM)CityFarmer Wrote:

(28-12-2012, 01:55 PM)specuvestor Wrote: Isn't temasek limited by their shareholding cannot exceed 30% including the warrants?

Temasek will not underwrite 100% of right issue since at least other major shareholder already commit to subscribe, so should not be an issue.

Is that confirmed? Didn't d.o.g. just said the opposite?

d.o.g 's statements are the following

"The rights issue circular is out. Despite the Kewelram family publicly saying that they will support the rights issue, and a Straits Times article assuming Sunny Verghese will take up his share of the rights, both parties are conspicuously absent from the list of undertaking shareholders. Only Temasek, in the form of its subsidiaries Aranda and Breedens, has given an undertaking to take up its share of the rights. Aranda has also underwritten the entire rights issue.

We will have to wait until the rights issue is over, and announcements are made on changes in deemed interest, to see whether Sunny Verghese and the Kewelram family have put their money where their mouths are, or whether the rights issue has all along been merely a disguised placement to Temasek."

Kewalram family had publicly said that they will support the right issue, which is the focus of media. I am sure they will do it. It is to their interest to do so.

I should put it as IMO in my previous posting.

http://www.straitstimes.com/breaking-new...e-20121211

(28-12-2012, 08:38 PM)zxiank Wrote:

(28-12-2012, 05:52 PM)specuvestor Wrote: Hi zxiank.. .this is what I wrote previously on the cost of debt from the company's perspective:

Hi specuvestor.. yes, we shared the same view and in fact, it can potentially cost Olam just 6.75% annually if they really do an equity placement to repay the bond when it matures. It become shareholders paying back shareholders.. and it sort of help them buy time, raising equity in the future should be a better deal than raising it now with the shares price so low.

oh just to add, even if all warrants are in the money and got exercised, from the company point of view, it's just more cash for them. They might be giving out equity below their fair value, but fair value is not fixed and variabled.

The party that might suffer will be the shareholders that got diluted because they can't exercise the warrant or sold them. However, for shareholders that subscribed to the rights and hold on to and exercise the warrants, it won't be that bad a deal right?

Anybody can highlight whether there will be other hidden costs that I missed out?

btw i saw e news that jims roger gg to take up e rights hor....

For information, last done prices of some Olam Bonds as follows ..............

6.00% Maturity October 2022 S$ Mid 90.0's

5.75% Maturity September 2017 US$ High 93's

2.50% Maturity September 2013 S$ Low 97's

5.80% Maturity July 2019 S$ High 90.0's

6.00% Maturity August 2018 S$ Low 92's

3% Maturity 25th February 2013 S$ Low 99's

7.50% Maturity August 2020 US$ Low 95's

4.07% Maturity 12th February 13 S$ Mid 99's

The 7% S$ Perpetuals are in the mid 82's last time I looked - the price seems to have stabilised.

Vested in the 7% S$ Perpetuals

(28-12-2012, 08:47 PM)zxiank Wrote:

(28-12-2012, 08:38 PM)zxiank Wrote:

(28-12-2012, 05:52 PM)specuvestor Wrote: Hi zxiank.. .this is what I wrote previously on the cost of debt from the company's perspective:

Hi specuvestor.. yes, we shared the same view and in fact, it can potentially cost Olam just 6.75% annually if they really do an equity placement to repay the bond when it matures. It become shareholders paying back shareholders.. and it sort of help them buy time, raising equity in the future should be a better deal than raising it now with the shares price so low.

oh just to add, even if all warrants are in the money and got exercised, from the company point of view, it's just more cash for them. They might be giving out equity below their fair value, but fair value is not fixed and variabled.

The party that might suffer will be the shareholders that got diluted because they can't exercise the warrant or sold them. However, for shareholders that subscribed to the rights and hold on to and exercise the warrants, it won't be that bad a deal right?

Anybody can highlight whether there will be other hidden costs that I missed out?

if in the future when the warrant can be exercised, Olam is worth significantly more, it will be bad for Olam's financial performance because they sold their warrants today cheap. The dilution to earning is larger.

(28-12-2012, 09:56 PM)RBM Wrote: For information, last done prices of some Olam Bonds as follows ..............

6.00% Maturity October 2022 S$ Mid 90.0's

5.75% Maturity September 2017 US$ High 93's

2.50% Maturity September 2013 S$ Low 97's

5.80% Maturity July 2019 S$ High 90.0's

6.00% Maturity August 2018 S$ Low 92's

3% Maturity 25th February 2013 S$ Low 99's

7.50% Maturity August 2020 US$ Low 95's

4.07% Maturity 12th February 13 S$ Mid 99's

The 7% S$ Perpetuals are in the mid 82's last time I looked - the price seems to have stabilised.

Vested in the 7% S$ Perpetuals

Many thanks RBM for the update.

(28-12-2012, 08:44 PM)CityFarmer Wrote:

(28-12-2012, 05:52 PM)specuvestor Wrote:

(28-12-2012, 04:31 PM)CityFarmer Wrote:

(28-12-2012, 01:55 PM)specuvestor Wrote: Isn't temasek limited by their shareholding cannot exceed 30% including the warrants?

Temasek will not underwrite 100% of right issue since at least other major shareholder already commit to subscribe, so should not be an issue.

Is that confirmed? Didn't d.o.g. just said the opposite?

d.o.g 's statements are the following

"The rights issue circular is out. Despite the Kewelram family publicly saying that they will support the rights issue, and a Straits Times article assuming Sunny Verghese will take up his share of the rights, both parties are conspicuously absent from the list of undertaking shareholders. Only Temasek, in the form of its subsidiaries Aranda and Breedens, has given an undertaking to take up its share of the rights. Aranda has also underwritten the entire rights issue.

We will have to wait until the rights issue is over, and announcements are made on changes in deemed interest, to see whether Sunny Verghese and the Kewelram family have put their money where their mouths are, or whether the rights issue has all along been merely a disguised placement to Temasek."

Kewalram family had publicly said that they will support the right issue, which is the focus of media. I am sure they will do it. It is to their interest to do so.

I should put it as IMO in my previous posting.

http://www.straitstimes.com/breaking-new...e-20121211

Sorry i hope you don't think i'm playing with words but I think the point is that it is NOT confirmed until Kewalram family show us the money The fact remains that they are not in the list of underwriting shareholders in the circular. We may be reading too much between the lines, or maybe they have no intention of getting excess, but as of now that remains a fact rather than an opinion. In any case I have stated that Temasek getting in is effectively drawing a line and I personally think the Olam crisis is over, baring a fraud, regardless of whether the family underwrites or not.

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(28-12-2012, 11:00 PM)freedom Wrote:

(28-12-2012, 08:47 PM)zxiank Wrote:

(28-12-2012, 08:38 PM)zxiank Wrote:

(28-12-2012, 05:52 PM)specuvestor Wrote: Hi zxiank.. .this is what I wrote previously on the cost of debt from the company's perspective:

Hi specuvestor.. yes, we shared the same view and in fact, it can potentially cost Olam just 6.75% annually if they really do an equity placement to repay the bond when it matures. It become shareholders paying back shareholders.. and it sort of help them buy time, raising equity in the future should be a better deal than raising it now with the shares price so low.

oh just to add, even if all warrants are in the money and got exercised, from the company point of view, it's just more cash for them. They might be giving out equity below their fair value, but fair value is not fixed and variabled.

The party that might suffer will be the shareholders that got diluted because they can't exercise the warrant or sold them. However, for shareholders that subscribed to the rights and hold on to and exercise the warrants, it won't be that bad a deal right?

Anybody can highlight whether there will be other hidden costs that I missed out?

if in the future when the warrant can be exercised, Olam is worth significantly more, it will be bad for Olam's financial performance because they sold their warrants today cheap. The dilution to earning is larger.

I think there are a few misconceptions here:
1) equity repaying bond is NOT shareholder paying shareholder. It is not right pocket to left pocket. More like the left pocket has a hole ie dilution
2) The real cost of the warrant is not present price or future price of the warrant. It is the strike price. Is this strike price close to the intrinsic value of the company for shareholders to be diluted?
3) the real cost to the company is different from 1) the cost to shareholders and different from 2) the PRICE based on black scholes. Obviously this is not the teaching of standard finance 101. From Buffet's point of view when he did the 10 years S&P puts, the price of the option is actuarial, the cost of the option is fundamental. I would say the real cost to a company issuing options or warrants is ZERO, assuming the shareholders are daft.