Olam and Muddy Waters

[Duckduck]

What are Olam management doing?

 

First Muddy Waters say they are taking a short in Olam and say it is only a matter of time before the company goes belly up.

 

Olam retort strongly and the CEO says there are no plans to raise debt for another 5-6 months.

 

And then they announce a $750m rights issue to meet capital requirements and term out short-term debt.

 

Temasek have to underwrite otherwise their holding gets diluted. Also if they don't underwrite, then other big institutions will suspect the allegations by Muddy Waters are true and will run for the escape door. And as a sovereign wealth fund you don't want your investments in local companies to go under...

 

Messy situation.

 

Confirm they have a debt raising problem. To me the only reason u erode shareholder values via rights is coz u cannot tap normal debt mkt. Must be some banks knee jerk pull out short term credit lines, so short term financing have to get $ from the biggest sucker available.

 

In the end the mkt will see thru this charade n olam will get its just deserves. Read last yr's damning clsa report

 

Well its rights warrant so unless the others strike, theres no dilution.... yet...

Edited December 4, 2012 by Duckduck

[Iisterry]

They are issuing at 95c to the dollar for the bond rights @ 6.75% yield due 2018. Given the discount, actual coupon rate is about 7.1%. For comparison, their current bonds due 2018 is yielding 9.348% currently. This is junk bond territory.

 

Temasek has undertaken to pick up all the excess which are not taken up by shareholders, but no such undertaking is heard from the other substantial shareholders in the management team. This is not normal.

 

Mr Sunny only has 10 mil shares under his direct name (from AR2012). The rest of his shares are likely pledged for a credit line. A substantial decline in share price will result in him facing a margin call.

 

Temasek is bailing Olam out. If they do nothing, the value of their holdings may be eroded significantly. If Olam issue rights, Temasek will just be giving money to Olam for spending. Damned if they do, damned if they don't. With this bond rights, it is equivalent to lending Olam money. Future operating cash-flow can at least be diverted as payment to bond-holders. It is probably the only avenue they can think of at the moment since any delay will just result in more expensive capital cost for them down the road.

[Duckduck]

They are issuing at 95c to the dollar for the bond rights @ 6.75% yield due 2018. Given the discount, actual coupon rate is about 7.1%. For comparison, their current bonds due 2018 is yielding 9.348% currently. This is junk bond territory.

 

Temasek has undertaken to pick up all the excess which are not taken up by shareholders, but no such undertaking is heard from the other substantial shareholders in the management team. This is not normal.

 

Mr Sunny only has 10 mil shares under his direct name (from AR2012). The rest of his shares are likely pledged for a credit line. A substantial decline in share price will result in him facing a margin call.

 

Temasek is bailing Olam out. If they do nothing, the value of their holdings may be eroded significantly. If Olam issue rights, Temasek will just be giving money to Olam for spending. Damned if they do, damned if they don't. With this bond rights, it is equivalent to lending Olam money. Future operating cash-flow can at least be diverted as payment to bond-holders. It is probably the only avenue they can think of at the moment since any delay will just result in more expensive capital cost for them down the road.

 

temasick is behaving as if olam is a personal family member. Why is there a need to give a coy more $ to survive when it cant even stand up on its own 2 feet? The very fact that it has to resort to taking all excess rights as really strange as it means its investing more than necessary n have larger exposure risk to 1 stock. If next yr global recession n olam crashes they will really look dumb

[Rollagt]

temasick is behaving as if olam is a personal family member. Why is there a need to give a coy more $ to survive when it cant even stand up on its own 2 feet? The very fact that it has to resort to taking all excess rights as really strange as it means its investing more than necessary n have larger exposure risk to 1 stock. If next yr global recession n olam crashes they will really look dumb

 

I cant imagine if the rights issue is severly under-subscribe then TH got to swallow big chunk of the remnants.

[Mockngbrd]

I cant imagine if the rights issue is severly under-subscribe then TH got to swallow big chunk of the remnants.

then wait cpf withdrawal age go up again

[Celicar]

Temasek is caught in a catch 22 lah, they are in too deep already. It is effectively fait accompli for them.

[EricTeh]

I cant imagine if the rights issue is severly under-subscribe then TH got to swallow big chunk of the remnants.

i hope for singapore good name

temasek can come but i hope they done swallow everything

otherwise messy

 

[Mockngbrd]

Temasek go in sure lose $$$$$$$$$ liao

[ShepherdPie]

got a feeling that there will be some action after 3pm today..

afterall, olam has to make good what they say abt not needing to raise fund in the coming mths..

 

Maybe , just maybe, we will see a major buyback of something later in the day..

[Chucky2007]

Signz... Do Temasek understand concentration risk? Anyway, seems like past 5 years, they always invest in high gearing companies. They seems not interested in investing in traditional companies. Look at F&N.. this kind of company they don't invest..

[Taipan49]

Looking through some of the current analyst views on this stock, we had CLSA last year question its financials. Kim Eng downgraded it from 2.85 (hold) to 1.70 (sell) in May this year, and now 1.42 (sell) today. So MW aren't the only ones here, their have been others.

 

And for a SWF, Temasek seems to be having the wrong approach. It should be low risk, good returns on a medium to long term setting. Not high gearing, high risk companies. It isn't like a Private Equity fund where you have to show results to keep investors.

[Jasonjst]

Signz... Do Temasek understand concentration risk? Anyway, seems like past 5 years, they always invest in high gearing companies. They seems not interested in investing in traditional companies. Look at F&N.. this kind of company they don't invest..

 

Not surprising wat. They will not invest in our local talent but give free scholarship to people like Alvin from Malaysia and Sun from china, only to get free strip shows and dog barking.

[Little_prince]

Temasek go in sure lose $$$$$$$$$ liao

 

seems that way.

 

if only there's a way to bet against temesek....

[Ace]

I guess by bailing out it serve another purpose. i.e to protect Singapore as a Financial center. We can't on one hand call ourself a financial center and yet on the other hand having a stock exchange that have scandal after scandal. We already have a few China co. suspended and if this is too spread to non-China co., one can imagine the confidence level investor will have in our stock exchange.

[Duckduck]

olampa opened +7% now +2%...

 

if so strong company why need to raise $ so quickly? Confirm some banks dun wana lend it liao so temasick bopian must sappork or else lose more $$$...

[Rollagt]

Let's see if Olam is able to obtain the AIP from the exchange..now already alot of hype on the proposed corporate action sia internet, forum, papers are actively discussing it.

[Tedlhw]

According to the writeup, its more to dilute MW shorts. but i am no expert.. so i really dun know what is going to happen next..

 

From what i understand, if you are holding short, then you need to pay the charges as well as the dividend, in this case, what does MW need to pay for holding shorts ?

 

i bought olam in [email protected] *sigh* .. even thoiugh price went all the way down.. i just happy to collect dividend. Now this stupid MW, make me so kancheong...

 

What is happening here is this.

 

You are getting a cash call of roughly USD300(313 lots of bonds issued at 95) for every lot of Olam you hold.

 

They will pay you a YTM of 8% for 5 years, which is nothing, because this yield is already available on the secondary market(or more).

 

The kicker is that you get a free warrant, effectively a call option at yesterday's closing price.

The price of the warrant is technically how much Olam goes up by vs yesterday's price.

If below yesterday's price, the warrant is worthless after 5 years(? I think maturity is 5 years?).

 

So, its a free upside for share holders.

However, this results in a dilution in the shares, since the bonds will have to be repaid after 5 years.

If entirely subscribed, it represents a 16% dilution.

 

A back of envelope calculation shows me that everything else being equal, a 16% dilution should in theory bring down price by 14% or so. (100/116)

 

The CEO is doing a few things.

First, he is playing his trump card . By playing up Temasek, he is saying, Temasek is backing me up. That alone, will stop the shortsellers in their tracks.

Just like you do not screw around with the BOJ, Temasek is another powerful deterrent, a wall of money.

 

Two, he is trying to make this a 'Godfather' deal, hoping that he can trigger a massive short covering, forcing the shortists to lose money.

 

He is trying to fire a bazooka to scare them off.

It also buys him another 1 year of cash. Very smart.

 

Hopefully it works.

If it doesn't, i would like to see if he has any other options or another bazooka/silver bullet.

The bonds, SGD 5.8% 2019 was around 90+ at 9 am, but dropped to around 88+ by lunch time.

And shares only closed 1.5% up.

 

This is my personal opinion. Could be wrong, so please dont take my word for it

Edited December 4, 2012 by Tedlhw

[ShepherdPie]

Thanks. Hopefully , they will show us what they going to do with the $$ in the nxt few days. Else I will have to say bye bye to my shares.

 

Seiously why are they issuing bond at this point in time. It's worse than doing nothing.