Olam International

[Musicwhiz]

Raising yet more funds? Somehow, I am not surprised!

(Not Vested)

Business Times - 04 Jun 2011

Olam shares hit by fears of share dilution

Commodities group says it's in talks on fund-raising initiatives

By MINDY TAN

OLAM International shares were among the biggest losers yesterday, falling as much as 3 per cent in heavy trading on news that the commodities group is exploring fund-raising initiatives.

After an intraday low of $2.81, the counter closed trading at $2.83, down seven cents or 2.4 per cent. The trading volume shot past its six-month average of about 7.5 million shares to hit 12 million shares yesterday.

CIMB Research analyst Lee Wen Ching noted that the share price weakness could be due to an overhang from the possible fund-raising initiatives announced by Olam.

In its announcement on Thursday, Olam said that as part of efforts to 'strengthen its financial performance and strategic position', it was in discussions with financial institutions on fund-raising initiatives which could include a share placement and/or a preferential offering. The announcement was in response to a report that it was planning a concurrent rights issue and share placement.

'The potential fund-raising initiative could be targeted at strengthening its balance sheet in anticipation of higher working capital requirements,' said CIMB's Ms Lee. 'It could also be motivated by acquisitions, which are typically funded by a mix of debt and equity. Of course, refinancing is also a possibility.'

'Until the terms of the potential fund-raising initiative are announced, there may understandably be an overhang on Olam's share price as investors are typically wary of dilution,' she added.

Olam had just last week announced that it was borrowing US$1.25 billion via a two-part syndicated term loan divided equally between three- and five-year portions, to refinance debt and expand its supply chain management.

The commodities group, which counts Temasek Holdings as its second largest shareholder, has been aggressively pursuing acquisitions as part of its growth strategy.

Olam yesterday issued an update on its full cash takeover offer to NZ Farming Systems Uruguay Ltd (NZS). Following the offer made on May 6, Olam increased its holding to 81.82 per cent yesterday.

Since January, Olam has acquired Britannia Food Ingredients, a specialty fats manufacturer in the UK; set up a milk powder plant in Malaysia; acquired and developed almond orchards in California and Australia; and relaunched its takeover offer for NZS.

[Musicwhiz]

That's a crapload of money to be raised. I wonder if shareholders will welcome the (i) potential dilution and (ii) requirement to cough up cash to prevent even further dilution of their stake.

I won't like to be an Olam shareholder right now!

Singapore's Olam to raise S$740 mln via share placement

SINGAPORE, Jun 6 (Reuters) - Singapore commodities firm Olam International plans to raise S$740 million ($602 million) through a placement of new shares, according to a term sheet seen by Reuters on Monday.

Olam plans to sell 94.4 million shares at S$2.60 each through a placement to investors, representing a discount of 8.4 percent from the last closing price on June 3.

The company also plans to sell another 94.4 million worth of shares to Singapore state investor Temasek [TEM.UL] at S$2.60 apiece.

The Olam placement includes a preferential tranche of 97.29 million shares that will be sold to existing investors at S$2.56 a share on the basis of one new share for every 22 shares held.

JP Morgan, Credit Suisse, HSBC and Standard Chartered are the joint bookrunners for the deal.

Source: Reuters

[Nick]

Very few companies have mastered the art of placing out new shares while raising the EPS (and share price) in the long run. So far Olam record is pretty decent here judging by the growth in earnings and share price. Let's see whether it can continue to do so after this massive placement ! Personally, companies get listed to raise capital when it is needed so I don't automatically view it as inherently negative. The results of it matter more. If they fail to add value, Mr Market will punish their share price - plenty of examples of these !

(Not Vested)

[Musicwhiz]

Very few companies have mastered the art of placing out new shares while raising the EPS (and share price) in the long run. So far Olam record is pretty decent here judging by the growth in earnings and share price. Let's see whether it can continue to do so after this massive placement ! Personally, companies get listed to raise capital when it is needed so I don't automatically view it as inherently negative. The results of it matter more. If they fail to add value, Mr Market will punish their share price - plenty of examples of these !

(Not Vested)

My view is somewhat different. Companies which constantly exploit the stock market to raise funds are companies which are cashf-low poor, hence the need to frequently raise funds from either the public, or other institutional investors. While an occasional M&A deal may require some fund-raising and gearing, Olam has been a serial acquiror and this will probably not be the last time they are raising money.

Think about it - if a Company pays out dividends to shareholders then asks them for cash again later on, this is equivalent to sucking the cash back again. Even if EPS goes up it may not mean the share price will automatically go up (giving rise to capital gains), as a lot also hinges on the future prospects of the firm and the Balance Sheet strength.

[iff]

I also don't like a company which keeps asking its shareholders to cough up money, and just keep on adding acquisition like mad.

For Olam, as they are doing this so often, they really need to prove the money taken can add value to EPS, and benefit its shareholders.
By offering rights at only slight discount to its market price, I don't think shareholders will take it very positively.

Big T has a stake in this company, I think this gives some comfort to retail investors.
While this counter is a commodity play, with the thin profit margin and fluctuating commodity prices, it does require a higher risk appetite to invest in.

(not vested)

[karlmarx]

i don't think 'Big T' investing in olam can be considered a positive endorsement. in fact, i will do a double take on anything 'Big T' takes an interest in. not all big funds are good capital allocators. and not all small funds are unintelligent. olam's business is too stretched. i don't fancy serial acquisitioners.

[Nick]

I also don't like a company which keeps asking its shareholders to cough up money, and just keep on adding acquisition like mad.

For Olam, as they are doing this so often, they really need to prove the money taken can add value to EPS, and benefit its shareholders.
By offering rights at only slight discount to its market price, I don't think shareholders will take it very positively.

Big T has a stake in this company, I think this gives some comfort to retail investors.
While this counter is a commodity play, with the thin profit margin and fluctuating commodity prices, it does require a higher risk appetite to invest in.

(not vested)

Olam EPS

FY 2002: 2.1 cents
FY 2003: 2.4 cents
FY 2004: 4.5 cents
FY 2005: 5.1 cents
FY 2006: 5.6 cents
FY 2007: 7.0 cents
FY 2008: 10.3 cents
FY 2009: 14.7 cents
FY 2010: 17.9 cents

(Source: Olam IR webpage)

Olam EPS has risen annually despite the equity fund raising every few years. The key question is whether can they continue to sustain EPS growth as they turn to larger equity financing in the present and in the future ? Personally, not a very big fan of serial acquirers though it is incorrect to assume a serial acquirer may not have a good track record of growing EPS and the share price in turn. Another point to note is that Olam is benefitting from the huge agricultural boom in the past decade - can this be sustained in the current decade ? Good questions to ask before venturing in !

(Not Vested)

[dydx]

Olam is like a runaway train that's out of control. The company trades in so many commodities, and as it buys from farmers at their farm-gates, the company's money goes into many difficult countries including those in Africa. How is it possible to monitor and control so many risks - on commodity price, storage of goods, pilfering, shipment, control over cash, customer/supplier defaults, etc.?

As Olam borrows a lot from many banks, the risks extend to them, and it is doubtful how the banks can help or manage Olam when things go wrong.

Do the people in Big T really understand commodity markets and the related risks and impacts on Olam? Are they backing Olam mainly because of the high-sounding commodity investment theme? Or did they just fall for Mr Sunny Verghese and his persuasive words?

To me, Olam is like a big vacuum cleaner, sucking in money from public shareholders and bankers alike, all in the name of building a global commodity supply-chain - or more like an empire that's out-of-control of its shareholders and bankers. Olam is beyond me, and therefore I have decided to simply avoid it.

[Musicwhiz]

Business Times - 07 Jun 2011

Olam set to raise $740m, may hit acquisition trail

Mixed reactions from analysts to fund-raising exercise

By FELDA CHAY

(SINGAPORE) Commodities supplier Olam International is building up its war chest by raising $740 million through a share sale, with half of the amount raised likely to go towards funding acquisitions, said two persons familiar with the matter yesterday.

It is understood that Olam will sell 286.11 million new shares in three tranches, with existing shareholder Temasek Holdings alone snapping up one tranche of at least 94.41 million shares. Another tranche of 94.41 million shares will be placed to institutional shareholders.

Stock sold under the two tranches are priced at $2.60 apiece - an 8 per cent discount to Olam's last traded price of $2.83 last Friday. Trading of its shares were halted yesterday pending an announcement on the share placement, which is expected to be out today.

BT understands that as at yesterday, the book building process has not been completed, though interest from institutional investors was very strong, said one source.

Assuming that Temasek takes up just 94.41 million shares, the final tranche of 97.29 million shares will be sold to existing shareholders at $2.56 each, on the basis of one new share for every 22 shares held. The price is a 9.5 per cent discount to Olam's closing price on Friday.

HSBC Holdings plc, Standard Chartered plc, Credit Suisse Group AG and JPMorgan Chase & Co are arranging the offering, which represents about 13 per cent of Olam's current issued shares.

A source said that Temasek, Olam's chief executive Sunny Verghese and its controlling shareholder, the Chanrai family, have undertaken to mop up shares that are not taken up by existing shareholders under the preferential offering. Temasek currently has a 12.95 per cent stake in Olam.

The bulk of proceeds will likely go towards funding the group's acquisitions, with about 30 per cent likely to be used for capital expenditure.

Analysts that BT spoke to have mixed reactions to the sale. Some noted that Temasek's acceptance of placement shares will be an indicator of the Singapore investment company's confidence in Olam's prospects. Others, however, note that Olam has raised funds on several occasions in the past few years, and that its latest fund raising is unlikely to be well received by the market because of the discounts to its last traded share price.

Said Eugene Ng, an analyst at UOB-KayHian: 'The key point here is that Temasek is one of the main investors and is raising its stake in a significant manner. When Olam previously placed shares to Temasek in May 2009, Olam had a lot of upside after that.'

Kim Eng analyst James Koh noted that the market was likely to react negatively to the discounts that the shares are being sold at. While acknowledging that this was common practice, 'the market, for most of the time, tends to react poorly to discounts', said Mr Koh.

He added that Olam's share price has also been drifting lower in the last few months, making the discounts to Olam's last traded share price even more significant.

SIAS Research vice-president Roger Tan, however, pointed out that Olam has made numerous acquisitions and investments in the last few years. In 2010, purchases that Olam made include a US$250 million takeover of US firm Gilroy Foods & Flavor's operating assets, and its dehydrated and vegetable products business. It also partnered Africa's Lababidi Group to set up a US$200 million port-based sugar refinery in Nigeria.

'The way to look at Olam's latest placement is to see who they are placing the shares to, how many people they are placing them to, the application of the funds, how the assets they purchase fit into the group, and the return on equity or return on assets of the acquisitions,' he said.

[Musicwhiz]

Business Times - 08 Jun 2011

Olam stock rattled by fund-raising exercise

Its shares fall by as much as 6% intra-day, on concern of earnings per share dilution

By FELDA CHAY

OLAM International shares took a beating yesterday on news that the commodities group has launched a $740 million equity fund-raising exercise.

Fears that the move will lead to earnings per share (EPS) dilution sent the stock reeling in opening trades. The knee-jerk reaction saw the counter plummet as much as 6 per cent, or 17 cents, to hit an intra-day low of $2.66.

It then recouped some lost ground to close the day at $2.73, still 3.5 per cent, or 10 cents, down.

It was one of the most actively traded stocks for the day, with 45.7 million shares changing hands.

Olam said yesterday that it sold 94.41 million shares to institutional investors at $2.61 a share and, subject to shareholders' approval, will sell another 94.41 million to Temasek Holdings at the same price - an 8.4 per cent discount from Olam's volume weighted average price (VWAP) last Friday, the final day it traded before the announcement was made.

The company will also sell 97.29 million shares to existing shareholders on the basis of one share for every 22 shares held at $2.56 a share. This is a 9.8 per discount to last Friday's VWAP. The three tranches will together raise $740 million.

A number of analysts who had issued reports on the commodities group yesterday retained their calls on the stock, though some cut their price targets to reflect lower earnings per share expectations.

CIMB Research noted that the issue will enlarge Olam's current share base by 13.4 per cent, translating into a 'significant dilution' of EPS.

The pricing of the share issue is also at a 'significant' discount, wrote CIMB in a research report. 'If we were to refer to its one-week VWAP prior to the trading halt, the placement actually represents larger 11.8-13.1 per cent discounts,' said CIMB.

Still, it recognised that 'a stronger balance sheet after equity-raising should help the group execute its medium-term growth strategy'.

'Beyond the immediate knee-jerk reaction, we see catalysts from the announcement of earnings accretive acquisitions as well as continued earnings growth.'

It cut its EPS estimates for Olam from fiscal year 2011 to 2013, and lowered its target price for Olam to $3.08 from $3.34. But CIMB kept its 'neutral' call on the company.

Nomura Equity Research believes that the amount raised should be sufficient to meet the company's growth plans for the next two to three years.

'We had calculated that Olam needed about US$380 million in equity funding for asset investments already announced, and with the help of this issuance, further leverage and incremental earnings, they could now easily fund about $2.4 billion in new capex (capital expenditure) without risk of any further dilution, in our view,' said Nomura.

It added that Olam's US$1.5 billion Gabon project to build a fertiliser plant and palm plantation is likely to be 'highly value accretive'.

'Potential dilution had been an overhang on the stock for the last few months, and we think the market will now start focusing on core earnings delivery, which has been strong.

'We reiterate Olam as a top pick,' said Nomura.

It reduced its price target for Olam to $3.60 from $4, and continues to think the company is a 'buy'.