Olam, in response to Muddy Water's claims, said that they "have more than enough capacity to meet ... repayment obligations of S$1.5
billion in the next 12 months, as well as ... likely capex of S$1-1.25 billion
in the same period" and that "without raising any further debt (they) can easily meet ... debt repayment
obligations and pursue ... planned Capex, in addition to meeting the on-going
working capital needs." Then, why are they issung bonds-cum-rights now?
This reminds me of CitySpring Infrastructure Trust's claim a few years ago that they did not have to issue rights and that people who said they had to didn't understand their business. It could also be a coincidence that Sunny Verghese was also the chairman of CitySpring Infrastructure Trust then.
Each 1,000 shares owned will get to subscribe for 313 bonds with a face value of US$1.00 each. The bonds have a 5 year tenor and a coupon rate of 6.75%. This unsecured bond will raise some US$750m for Olam.
Each 1,000 shares owned will also be given 162 free warrants. Strike price of warrants is US$1.291. The warrants expire in 5 years and cannot be exercised in the first 3 years. This will raise US$500m for Olam if all the warrants are eventually exercised.
Full details here:
Olam International announces proposed US$750 M Renounceable Underwritten Bond-Cum-Warrant Rights Issue
Rights issues to strengthen the balance sheet is bad news for shareholders as it dilutes EPS (eventually, in this case). It also admits that the balance sheet was weak in the first instance. What are shareholders to do? It is Hobson's choice.
"The Transaction is available to all its equity shareholders and provides a unique and rewarding opportunity to participate in the long term growth of the Company." This requires a leap of faith and I certainly hope for all shareholders that things improve from here.
Share price could take a hit tomorrow. $1.35 perhaps?
Related post:
Olam: A time bomb?