Going Nuts, Cashew Nuts – Olam Bonds
Temasek is going the way of cashew nuts, coffee and broken rice.
March 14 (Bloomberg) — A Temasek Holdings Pte unit offered to buy Olam International Ltd. in a bid that values the commodity trader at S$5.3 billion ($4.2 billion), about 16 months after it helped stave off an attack by short-seller Carson Block.
Breedens Investments Pte is offering S$2.23 cash per share, the Singapore-based company said today in a statement, a 12 percent premium to Olam’s last closing price of S$1.995. It’s also making an offer for Olam’s outstanding bonds and warrants.
Breedens to offer S$1,077.581 cash for every $1,000 princial of outstanding convertible bonds
To offer S$0.646 cash/warrant for outstanding warrants
I thought I was unworthy to discern the delicate and LONG TERM logic for this lottery like premium windfall. Then again, I am not a President’s scholar.
Buying election favours ? – not really considering that they have a majority shareholder… Or to piss Carson Block off ? Or to piss the ex Temasek director who had much to say about Olam off ? Or to piss them all off ?
Or is Temasek pissed off at the loan rate that the 15 banks priced for Olam ?
March 11 (Bloomberg) — Olam International has shortlisted 15 banks to join an arranger group for its up to $1.2b two-part syndicated loan, according to three people familiar with the matter.
• The banks are ANZ, Commerzbank, Credit Suisse, DBS, Deutsche Bank, First Gulf Bank, HSBC, ING, JPMorgan, KDB, NAB, Natixis, Rabobank, RBS and Standard Chartered; each bank has pledged $75m
• The group is awaiting the co.’s official mandate for the loan before marketing the facility in general syndication
• Co. has not yet fixed the size of the facility, which will comprise a three-year tranche and a five-year portion
• Proceeds are to refinance co.’s maturing debt
• Olam has $1.22b loans maturing in 2014, according to Bloomberg data
Then, I struck on it !
Temasek is doing this for the people ! To secure our food source for the future as El Nino threatens to ravage crops around the world and the U.N. coming out to warn on food security as a risk to Asia Pacific.
“Commodities investors and farmers are on alert after the third official warning in a week of an El Niño weather phenomenon emerging that could affect food and energy markets already reeling from extreme weather in many parts of the world.” http://www.ft.com/cms/s/0/77275cf0-a8f9-11e3-9b71-00144feab7de.html#ixzz2vugQ876w
“The world must increase its food production by 60 percent by mid-century or risk serious food shortages that could bring social unrest and civil wars, the U.N. Food and Agriculture Organization (FAO) said on Monday.” http://in.reuters.com/article/2014/03/10/united-nations-food-security-idINDEEA2907820140310
As it is, the American chill, droughts in California, Australia and Brazil are limiting supply. Humans really should learn to eat copper and crude oil whose prices have fallen because it would be so much cheaper and environmentally efficient for us.
Well, I am not here to ask for trouble by making anymore comments on the investment decisions of the wise and wonderful. So let’s talk about Olam bonds and the implications.
| Coupon | Maturity | Curr | BID | ASK | BID | ASK | |
| Olam International Ltd | 6.75 | 29-Jan-18 | USD | 104.25 | 105.3 | 5.13 | 4.35 |
| Olam International Ltd | 6 | 25-Oct-22 | SGD | 96 | 97 | 6.61 | 6.46 |
| Olam International Ltd | 5.75 | 20-Sep-17 | USD | 102 | 102.8 | 5.12 | 4.87 |
| Olam International Ltd | 5.8 | 17-Jul-19 | SGD | 101.75 | 102.95 | 5.42 | 5.16 |
| Olam International Ltd | 7 | PERP | SGD | 95 | 97 | 8.95 | 8.15 |
| Olam International Ltd | 6 | 10-Aug-18 | SGD | 102 | 103 | 5.48 | 5.23 |
| Olam International Ltd | 7.5 | 12-Aug-20 | USD | 105.75 | 106.8 | 6.39 | 6.2 |
Overall, a hugely credit positive event.
I noticed a change of control put option available for senior bondholders on event of a change of ownership and this takeover constitutes a trigger. This will allow the bondholder to put the bond back at 100 which would be quick profits for those who had bought at the low and not so useful for the bonds trading above 100. I cannot find the same option in the offering circular of the perpetual 7% bond and all the 270 pages I skimmed through but I will have to clarify that elsewhere.
Unlike the case of FNN bonds, there is no obligation for Temasek to tender for the securities this time round because the company will continue as a going concern.
There is a question of what will happen if the company goes private, if the 10% free float necessary for listing is not managed. I will keep an eye out for that.
Temasek’s, or rather Breedon Investment, move is a stamp of solidarity for Olam support which should give current bondholders cheer and less to worry about in terms of further credit deterioration. Stock holders who stuck it out will enjoy profits, though not as much as Temasek and her band of brothers.
I have little to say about Temasek’s timing of the markets because they operate in a superior realm of logic that I cannot fathom, like in the case of their ICBC purchase last year which has … errr, gone substantially lower since https://tradehaven.net/views_commentaries/why-temasek-why/. I like the idea that they are doing this for the people, because the way to a man’s heart is through his stomach.
Views are divided as to whether Olam bonds will continue to tighten and converge with Temasek credit spreads from here. My opinion is that we should see demand emerge once the smoke settles and the company remains publicly listed. There is a risk that of privatisation which should, technically, not affect prices and I do expect Olam to continue issuing away even then because they have SGD 1.2 bio due this year in loans (which could be replaced by bonds), nothing next year (just SGD 20 mio) and another SGD 2.39 Bio in 2016. Thus, bonds will find support.
The game has changed for Olam bonds, for the better.
Temasek levels for comparison.
| Issuer Name | Coupon | Maturity | RATING | Curr | Bid Price | Ask Px | YIELD |
| Temasek Financial I Ltd | 2.375 | 23-Jan-23 | AAA | USD | 92.1 | 92.1 | 3.417 |
| Temasek Financial I Ltd | 3.375 | 23-Jul-42 | AAA | USD | 81.38 | 81.38 | 4.55 |
| Temasek Financial I Ltd | 4.2 | 2-Aug-50 | AAA | SGD | 105.259 | 106.5 | 3.897 |
| Temasek Financial I Ltd | 5.125 | 26-Jul-40 | AAA | GBP | 117.573 | 119.2 | 3.983 |
| Temasek Financial I Ltd | 4.625 | 26-Jul-22 | AAA | GBP | 111.884 | 112.5 | 2.952 |
| Temasek Financial I Ltd | 3.785 | 5-Mar-25 | AAA | SGD | 103.699 | 104.5 | 3.336 |
| Temasek Financial I Ltd | 4.0475 | 5-Mar-35 | AAA | SGD | 100.465 | 101.9 | 3.964 |
| Temasek Financial I Ltd | 3.265 | 19-Feb-20 | AAA | SGD | 105.694 | 106.3 | 2.183 |
| Temasek Financial I Ltd | 4.2 | 7-Dec-39 | AAA | SGD | 101.741 | 102.6 | 4.061 |
| Temasek Financial I Ltd | 4 | 7-Dec-29 | AAA | SGD | 101.882 | 103.7 | 3.764 |
| Temasek Financial I Ltd | 5.375 | 23-Nov-39 | AAA | USD | 113.165 | 115.2 | 4.443 |
| Temasek Financial I Ltd | 4.3 | 25-Oct-19 | AAA | USD | 110.636 | 110.6 | 2.267 |
| Temasek Financial I Ltd | 4.5 | 21-Sep-15 | AAA | USD | 105.99 | 106 | 0.501 |
Hi tradehaven, thank you so much for all your effort to meticulously give everyone a clearer picture of the Olam bond issues. May I seek your kind advise on this:
a) I remember the Olam 6.75% USD bond maturity jan 29 2018 has some early redemption clause. Do u you have any details of it? What is the price that they will redeem it if they redeem sooner than 2018? Which are the various early redemption dates? I remembered there are a few of such dates when it was issued but i cant find them now. 🙁
b) You mentioned above:
“I noticed a change of control put option available for senior bondholders on event of a change of ownership and this takeover constitutes a trigger. This will allow the bondholder to put the bond back at 100 which would be quick profits for those who had bought at the low and not so useful for the bonds trading above 100. ”
Just to check with you, does that mean that for the Olam 2022 6% paper, the bondholder has the right to redeem the bond back at par? So whether to redeem at 100 will be decided by the bondholder not the issuer? If that were the case, when can an investor redeem it back? I am really sorry to be asking this cos I am really bad with these terms.
Thank you so much Sir.
Olam 6.75% 01/2018 call options.
1. 29 Jan 2015 103.375
2. 29 Jan 2016 101.688
3. 29 Jan 2017 100
As for the change of control put option, I would say it is a grey area because it is at the discretion of the Trustee or at the request of 25% of note holders. Read more here. http://infopub.sgx.com/FileOpen/Olam%20OC%20%286%20July%202012%29.ashx?App=Prospectus&FileID=3090
Course of action for you.
1. Wait and see if Temasek succeeds
2. Wait and see if company is privatised
Hi tradehaven, deeply appreciated the information and thoughts. Thank you once again.
May I just ask what will probably be the best outcome for bond holders? Temasek must at least attain 50% control (now only 30%) and the higher the percentage the better? If it is such that free float goes less than 10% and the company is privitaised is that good for bondholders? Will I still be able to sell the bond away the normal way if it is privatised?
May I also ask, do u have any idea the various indicative Olam bond prices above are the prices at the end of the day? After Olam made the announcement in the early morning were the bonds already trading around that price or did the price slowly move up throughout the day?
Thank you so much for everything again and have a wonderful weekend!
Regarding the Olam 6.75% retail bonds, if free float goes below 10% and the Olam shares is delisted, will that mean the 6.75% retail bonds will get delisted too? If that were the case, at what price will they pay back the bond holders? 100 or 103.375 or higher since it is now only 2014.
Many many thank again.
There is no clause for delisting the bonds, I believe, even if Olam is privatised.
The call options still stand at 103.375 and so on.
The buy back is dependent on the bond holders and the trustee.
Olam 6.75% 29-Jan-18 USD 99.90 99.90
Olam 6% 25-Oct-22 SGD 97.60 98.30
Olam 5.75% 20-Sep-17 USD 101.51 102.41
Olam 5.8% 17-Jul-19 SGD 100.56 101.43
Olam 7%PERP SGD100.03 100.88
Olam 6% 10-Aug-18 SGD
Olam 7.5% 12-Aug-20 USD 100.25 100.25
Thanks for the insight and thoughts. A bit puzzled why the perp is trading well above the senior 2022 paper ever since the news. Will look out for more updates on the Olam prices from you.
Thanks again.
Perp is still higher in yield because of call date in 2017.
Oh I see. Thanks for your explanations. Will look up for the latest Olam bond prices again when they are available. Hope they’ll be re-rated to higher values. Thanks again
Olam has some upstream assets but the company is still largely a supply chain manager so don’t know what Temasek is thinking….sigh
Middlemen get the fattest cuts. Who cares about the poor farmers ?
Anyway Olam cannot be seen lagging Noble (State-owned China Investment Corp. is its second-biggest shareholder, with a 14.08
percent stake, according to data compiled by Bloomberg.)
Hello, I’m a latecomer. Thank you all for the educational postings. I wish to know if anyone has any comment on OLAM PERPS 7% last transacted at 97.335? Is it a good investment?
Hi hauwquek,
OLAMSP 7% PERP indicatively is around the 97.375 level you mentioned. The bond is callable in March 2017, but first coupon reset date is March 2022 (10yr Swap + 4.965% + 1%, i.e. 100bps set up). The market does not seem to be pricing in any meaningful probability of a call in 2017 as the Yield to Call in 2017 would be >9%, which is way too high for 1-year Olam (or quasi-Temasek) risk. More realistically, pricing in to the March 2022 coupon reset (and call) date, we arrive at 7.50% Yield to Call. That does appear relatively attractive given the ownership. To give you some perspective, the high price on this bond was around the 104 area in the middle of last year. Prices have tumbled since the beginning of 2016 as commodity prices plunged and all risk assets sold off.
Hope this helps.