With clearing price at 65%, firm paying US$76.44m, funded by new 3-year loan
By EMILYN YAP
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AGRICULTURE supply chain manager Olam International is buying back US$117.6 million of convertible bonds at a discount, booking gains and shaving its gearing in the process.
For US$0.65 on the dollar, Olam is paying US$76.44 million in cash for the convertible bonds. It will take up a new three-year term loan to fund the deal.
'Current market conditions afforded us an opportunity to reduce outstanding debt, reduce refinancing risk, strengthen our balance sheet and deliver value to our shareholders,' said group managing director and CEO Sunny Verghese yesterday.
Olam's repurchase offer attracted over 60 bids from global investors. Prices of the convertible bonds have fallen since US$300 million of them were issued in July. They last closed at US$0.6275 on the dollar on Dec 10, according to Bloomberg data.
The convertible bond buyback and new loan leaves Olam with a net decrease in debt of US$41.16 million. The company will also book a non-taxable gain of about the same amount when the repurchase is completed.
Assuming that Olam had repurchased the convertible bonds on Sept 30, the net debt to equity ratio for its first quarter would be a lower 2.46 instead of 2.71.
UBS Investment Research said in a note yesterday: 'This is further down from 3.2x earlier in the year, and thus we remain confident in management's focus and ability to further reduce gearing levels.'
Olam has also cut its potential refinancing obligations with the repurchase. It can avoid buying back up to US$130.67 million of bonds (because bondholders have the right to sell them back to the firm in July 2011). It also avoids future coupon payments and accretion on the bonds repurchased of up to US$13.64 million.
Across Asia, other companies such as Galaxy Entertainment and Flextronics International have been repurchasing debt at lower prices. 'Buying back debt at a discount to par value and cancelling it guarantees (companies) a windfall,' said Damien Wood, head of Asian credit research at Credit Suisse Group in Singapore to Bloomberg.
The same report mentioned that much of the fall in corporate debt prices could have been driven by hedge funds selling their holdings to repay investors.
But not all bondholders are taking up the offers. Olam, for instance, still has US$182.4 million of the convertible bonds outstanding after the repurchase. A fund manager told Bloomberg last week that she wants at least US$0.79 on the dollar before selling.
'We believe that . . . bondholders who have chosen to hold the remaining outstanding bonds see value in the bonds and the future prospects of Olam,' said Mr Verghese.
Olam shares closed one cent lower at $1.17 yesterday.
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