Shareholders snapping up Olam bonds but doubts remain

"Why make the offer so attractive?", asks IG Markets.

In its Singapore evening update report, IG Markets notes that Olam topped the list of STI gainers in the past trading day as short covering before the much maligned capital rights issue drove the price upward.

"The shares ended the day at $1.475, a gain of 5.7%, well off the early highs, but still the biggest daily move higher in the stock since the capital raising was announced at the beginning of December. It is hardly surprising that a bond yielding 6.75%, with warrants attached and issued at a discount to par value has shareholders chomping at the bit to get involved," IG Markets said.

"As we have discussed several times it is a very attractive offer, especially so if you believe the management of the company that everything is more than fine with the financial health and accounting of the company," it added.

"The question still remains over whether the decision to raise capital through this expensive method really shows that the company is being well managed, and is positioned well. If capital is easy to access and shareholders are full of confidence why do you need to make the offer so attractive?" it said further.

"Sadly, it could be some time before we truly know the answer to that question and in the meantime the decision to invest further capital in the company has to be taken now. We know the large institutional shareholders are happy to partake, and Temasek has basically underwritten the issue, so it would seem likely that most others will take the risk and partake in the high-yielding bond."