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