Olam International

[shanrui_91]

I read in ST's article today that 1 move by HSBC in GFC to defend against shortist is to issue right so that share lender has to call back their share to prevent dilution. But this move by Olam seemed a bit complicated with bond, share, warrant and right...

[cfa]

I read in ST's article today that 1 move by HSBC in GFC to defend against shortist is to issue right so that share lender has to call back their share to prevent dilution. But this move by Olam seemed a bit complicated with bond, share, warrant and right...

Will cause more genuine selling only.

[kichialo]

looking at the high yield for its bonds, i dun think there is a need to rate them as they are probably default 'junk' status

You're most prob right! That's why I think MW's offer to get Olam's debt rated is nothing short of brilliant.

It is just mischievous. Getting the debt rated now when the company is "under attack" will just play into Muddy's hands.

[Temperament]

i think OLAM is now love very much by "professional traders"

[shanrui_91]

From Straits Times

Use shock-and-awe strategy to beat short-sellers
Olam can follow HSBC's tactic: Offer deeply discounted rights issue

Published on Dec 03, 2012
In 2009, HSBC Holdings came under attack by short-sellers and its stock plunged. Without flinching, it went ahead with its rights issue and the move paid off - the bank's share price made a V-shaped recovery. -- PHOTO: ASSOCIATED PRESS


By Goh Eng Yeow Senior Correspondent
WARFARE campaigns on a massive scale are now few and far between, but skirmishes in the financial world are common. Lives may not be lost, but plenty of corporate blood gets spilt.

A new breed of trader has come to prominence in the past few years, building up big short positions in companies and then trying to herd other investors to drive down their share prices - and reaping a big profit.

"Activist" hedge funds, as they are called, provide what some believe to be a valuable service to investors in exposing the dodgy accounting and corruption at emerging-market companies.

Unless a company mounts a successful counter-offensive, it will find the very life of its share price draining away, as panicky banks cut credit lines and suppliers and customers scramble for the exit.

And this can happen whether the accusations made by the marauding short-sellers hold credence or not.

How, then, should a company under attack fight back if it believes it has been unfairly targeted?

The recent global financial crisis offers a few useful lessons companies should heed.

At the height of the crisis in March 2009, HSBC Holdings came under attack by short- sellers, who drove down its share price by 24 per cent in a single day.

This was despite it launching an attractively priced rights issue to raise US$17.7 billion.

It traumatised the regional investment community so much that one popular stock commentator in Hong Kong even broke down and cried on camera as she reported the bank's share price plunge.

As one HSBC old hand observed at the time, hedge funds had sniffed blood when HSBC announced its rights issue, and gone on a coordinated short-selling campaign to spread panic among investors.

But the global lender never flinched from the challenge, and pressed on with its cash call, confident that its vast legion of shareholders would stay loyal and lend it support when it was needed most.

It was a daring gamble that paid off in a spectacular manner, as the bank's share price made a V-shaped recovery.

This forced investors who had lent out their shares to the short-sellers to recall them to subscribe to the rights issue, or face a big dilution of their shareholdings.

The decisive manner in which HSBC beat back the short-sellers also propelled other beleaguered regional lenders sharply higher and enabled markets to stage a resounding recovery.

Now agricultural commodity trader Olam International appears to be facing a similar predicament. It says it is besieged by hedge funds that it claims are using independent research outfit Muddy Waters as a front to raise issues over its business and finances.

No doubt, it has mounted a robust defence, with a point-by- point rebuttal of the issues raised in a 133-page report published by Muddy Waters last week.

But its share price is still trading at about 9.5 per cent below the level it closed before Muddy Waters fired its opening salvo a fortnight ago.

Olam's debts are also showing signs of distress, with buyers only offering 76 cents to the dollar for its perpetuals - a bond-like instrument carrying a 7 per cent coupon.

As IG Markets strategist Justin Harper noted, some mud appears to have stuck, whether Olam likes it or not. So restoring faith among its banks and investors should be the company's top priority.

Olam should take note of what HSBC did during the global financial crisis, namely launching a deeply discounted rights issue to bolster its balance sheet, given the questions raised by Muddy Waters over its finances.

The willingness of Olam's shareholders, especially blue-chip ones like Temasek Holdings, to part with hard cash to pay for the rights issue would offer a more dramatic confidence boost than the utterances of group managing director Sunny Verghese or the defences put up by analysts.

It would also be a much better strategy than buying back shares, which will only burn up the company's much-needed cash.

And like HSBC before it, any rights issue will force the Olam shareholders who had lent out their shares to short-sellers to recall them in order to participate in it, or risk facing dilution.

Actions speak louder than words. A shock-and-awe approach is needed to scare off the short-sellers besieging Olam's gates.

engyeow@sph.com.sg

[d.o.g.]

Olam asking for $$ yet again!
This time they are issuing rights.

http://info.sgx.com/webcorannc.nsf/Annou...endocument

Temasek is doubling down - they have underwritten to buy any "Bonds with Warrants" that are not taken up. Methinks Temasek will end up with a rather large allocation of the "Bonds with Warrants" after this little exercise. I don't think many other shareholders will have the appetite to throw more money at Olam until it's absolutely clear that Muddy Waters is wrong.

Interestingly, the insiders - the Kewelram family and Sunny Verghese - have NOT given an undertaking to take up their respective shares of the rights. Do they know something that David Heng of Temasek doesn't?

There is no announcement that Olam will have the new debt rated, so it will be junk, like the rest of its outstanding debt.

Note that they are being sneaky in issuing the bonds at 95% of par. That effectively adds ~1% to the yield, so even though the coupon is 6.75%, since the bondholders will only pay 95 (and be paid 100 at redemption in 5 years' time) the real yield is actually 7.75% or thereabouts.

All this is coming from a company that is blowing its trumpet over its "Most Transparent Company" awards. Well, the last company that I remember making a big deal over winning a transparency award was China Aviation Oil. We know how that one turned out - their trading desk was trading financial derivatives without any risk controls and finally blew up. What about Olam? Olam has a trading desk trading financial derivatives and somehow cannot account for their positions properly (as Muddy Waters points out, they regularly restate their accounts) which calls into question the efficacy (or existence) of their risk controls.

As usual, YMMV.

[freedom]

in short term, Olam has enough to squeeze both the bond and stock short sellers with nearly the 1 billion raised. Temasek is really betting big in this game.

What would the rest of financial institutions do? Support Olam, support Muddy Water or just sit on fence and do nothing?

good drama coming.

[arthur]

I am getting really dizzy over all these strategies n tactics.
孙子兵法哪一样？

I pray Temasek NOT to lose money this round again.
Its my, yours and our fathers moniea for goodness sake regardless how or who said what.
Without Singaporeans, where do Temasek coffers get filled in the first place?

*grumble grumble*

[Temperament]

I am getting really dizzy over all these strategies n tactics.
孙子兵法哪一样？

I pray Temasek NOT to lose money this round again.
Its my, yours and our fathers moniea for goodness sake regardless how or who said what.
Without Singaporeans, where do Temasek coffers get filled in the first place?

*grumble grumble*

"TANG KU KU CHOO HOO"

In fact Papys already mentioned somewhere in the news ( if i am not wrong i have read it) that in future GST will have to increase to fund a higher or better "welfare" for Sink aporeans.

[yeokiwi]

I wonder whether Temasek had done a better or equivalent research than MW on Olam.
If they had not done it and subsequently committed to further invest in Olam's right issue, it is pure negligence.

Moreover, they are comfortable that Kewalram is not undertaking their right issues.

And I almost choke on my dinner when I read one of the sentences by David Heng's - "we remain comfortable with Olam's credit position.."