Mysteries about Olam's rights issue solved

The price is trading at a discount.

Here's what Nomura has to say:

We have been getting a lot of questions on Olam’s rights issue. Since 5.75% bonds due Sep 2017 are trading at US cents 94.6 (ticker – OLAMSP 5 ¾ Corp) and 7.5% bonds expiring Aug 2020 are trading at US cents 96.02 (ticker – OLAMSP 7 ½ Corp), we can assume bonds embedded value in the rights issued at US cents 95 with 6.75% coupon due 2018 (with assumed yield of ~8%).

Thus, the value of the rights is effectively the value of the bonds plus embedded warrants, which, at long-term trading assumptions, we value at US cents 21.5. Since nil-paid rights are currently trading at US cents 7.2 (ticker – OLAMSP 6 ¾ Corp), we recommend subscribing to the rights. We believe that the price is trading at a discount because of large sellers in the market (many funds would not have mandate to subscribe to bonds).

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