Olam International (Olam) recently revealed that Temasek Capital (Private) Limited has increased its deemed interest in the company to 19% as of 28 Dec 2012; this up from around 16% before the Muddy Waters allegation on 20 Nov 2012. However, we continue to believe that there are still several medium- to long-term issues that need addressing. We also foresee potential economic headwinds for the commodity sector as a whole. As such, we maintain our HOLD rating and S$1.44 fair value for now.
Temasek ups stake to 19%
Olam International (Olam) recently revealed that Temasek Capital (Private) Limited has increased its deemed interest in the group to 19% as of 28 Dec 2012; this is up from around 16% before the Muddy Waters allegation on 20 Nov 2012. As before, we deem the move by Temasek as a potential confidence booster in the near-term. However, we continue to believe that there are still several medium- to long-term issues that need addressing.
Some medium- to long-term issues remain
For one, we expect the market to watch the company’s acquisitions with greater scrutiny, especially those into non-related industries. In addition, we believe that investors will also be following the execution of past acquisitions closely; and Olam can help with more prompt updates. More importantly, the market will also be keeping a close watch on the company’s outstanding debt obligations and the repayment of US$600m of debt due this year.
Shares trade ex-right
Meanwhile, Olam shares have already started trading ex-rights; but note that there is no price adjustment as there is no medium term dilution. Instead, the rights issue entitled existing shareholders to subscribe for 313 bonds with 162 detachable warrants. Trading of nil-paid rights will be from 7 – 15 Jan, while the listing/quotation of bonds and warrants will happen around end Jan or early Feb. Recall that Temasek has earlier undertaken to subscribe to its pro-rata entitlement of the US$750m rights, but also committed to take 100% of the rights not subscribed by existing shareholders.
Maintain HOLD with S$1.44 fair value
Despite Temasek’s recent stake increase, we continue to maintain our HOLD rating and S$1.44 fair value as we foresee potential economic headwinds for the commodity sector as a whole. A recent Bloomberg article found that hedge funds have cut bullish commodity bets to a six-month low on mounting concern that slowing economic growth will erode demand.
Olam International (Olam) recently revealed that Temasek Capital (Private) Limited has increased its deemed interest in the group to 19% as of 28 Dec 2012; this is up from around 16% before the Muddy Waters allegation on 20 Nov 2012. As before, we deem the move by Temasek as a potential confidence booster in the near-term. However, we continue to believe that there are still several medium- to long-term issues that need addressing.
Some medium- to long-term issues remain
For one, we expect the market to watch the company’s acquisitions with greater scrutiny, especially those into non-related industries. In addition, we believe that investors will also be following the execution of past acquisitions closely; and Olam can help with more prompt updates. More importantly, the market will also be keeping a close watch on the company’s outstanding debt obligations and the repayment of US$600m of debt due this year.
Shares trade ex-right
Meanwhile, Olam shares have already started trading ex-rights; but note that there is no price adjustment as there is no medium term dilution. Instead, the rights issue entitled existing shareholders to subscribe for 313 bonds with 162 detachable warrants. Trading of nil-paid rights will be from 7 – 15 Jan, while the listing/quotation of bonds and warrants will happen around end Jan or early Feb. Recall that Temasek has earlier undertaken to subscribe to its pro-rata entitlement of the US$750m rights, but also committed to take 100% of the rights not subscribed by existing shareholders.
Maintain HOLD with S$1.44 fair value
Despite Temasek’s recent stake increase, we continue to maintain our HOLD rating and S$1.44 fair value as we foresee potential economic headwinds for the commodity sector as a whole. A recent Bloomberg article found that hedge funds have cut bullish commodity bets to a six-month low on mounting concern that slowing economic growth will erode demand.
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