Olam: Renounceable Underwritten Bond-Cum-Warrant Rights Issue.

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.

"Temasek is committed to take 100% of rights not subscribed by existing shareholders." Just like the case with CitySpring Infrastructure Trust, Temasek Holdings could end up enlarging its share of Olam.

　
"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?

Article published in Yahoo! Finance Singapore.

Some time ago, I was approached by MoneyMatters.SG for permission to re-publish a few of my older articles. I consented as I feel that if more people could access my writings and benefit from my ideas, it would make me very happy.

Today, I found out that an article was re-published in Yahoo! Finance Singapore on 28 November 2012 under the Special Features section. Although edited, the message is intact and the spirit has been retained.

Link here: http://sg.finance.yahoo.com/news/want-richer-065248352--sector.html

If you feel that this article could be useful to your friends or family, please feel free to share it. If we can help people to better themselves and improve their financial health, we should.

Help people to help themselves. I like this. :)

The original post (unedited):
Do you want to be richer?