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

07/06/2011 Leave a comment
Mixed reactions from analysts to fund-raising exercise


(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.

Sources from and

Categories: Stocks