Near term overhang remains for Olam

Olam's recent move to beef up balance sheet viewed risky.

Here's from OCBC:

Olam International Limited (Olam) could continue to face a near-term overhang following allegations made by Muddy Waters (MW) over the
company’s investments, capex spending and accounting reclassifications. Since MW made these allegations on 19 Nov, Olam’s share price has fallen by 18%; it has yet to recover.

Also raising funds via a rights issue In a move to beef up its balance sheet, Olam has announced plans for a rights issue comprising US$750m worth of five-year bonds paying a 6.75% coupon (but with an effective yield closer to 8% due to the 95% issue price), with stapled warrants (up to US$500m if fully converted at US$1.291 each after three years). The bonds and warrants will be offered as a single package, fully renounceable, until fully paid and listed; after listing, the bond and warrants will be detachable and traded separately.

Temasek gives vote of confidence
Meanwhile, Temasek Holdings seems to have given a vote of confidence to Olam; not only has the sovereign fund undertaken to subscribe to its own share of the rights, it has also committed to take 100% of the rights not subscribed by other shareholders. We understand that Olam’s management also intends to subscribe for its pro-rata entitlement.

Rights may be complicated for retail investors
However, retail investors may find the rights issue a tad complicated, as it combines debt with options. And given the recent sharp drop in
the price of Olam’s outstanding debt, even sophisticated investors could view it as risky. As the outlook for the next six months is likely to remain muted, we maintain our HOLD rating and S$1.44 fair value for now. We would be buyers closer to S$1.23 (FY13F NTA).

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