Published December 5, 2008

Olam to buy back up to US$150m of bonds

Shares rise 10.8% to 97.5 cents as investors react positively

By EMILYN YAP
Email this article
Print article
Feedback

AGRICULTURE supply chain manager Olam International plans to repurchase up to US$150 million of its convertible bonds after prices more than halved since July.

Quality check: Green coffee bean inspectors at work

Investors reacted positively to the news, pushing Olam shares up 9.5 cents or 10.8 per cent to close at 97.5 cents yesterday.

Olam had launched US$300 million of convertible bonds in July.

Due in 2013, the bonds bear an annual coupon of one per cent and a yield-to-maturity of 4.5 per cent per annum.

Bondholders can convert the instruments into ordinary Olam shares at an initial conversion price of $3.8464.

Unless redeemed, converted or purchased and cancelled, the bonds would be redeemed at 119.38 per cent of their principal amount on maturity.

In the past few months however, prices of the convertible bonds have fallen to US$0.46 on the dollar, according to Bloomberg data as at Dec 3.

There is now a 'profitable opportunity available due to the attractive yields offered by the market on our bonds,' Olam told BT.

Olam shares have also lost more than 50 per cent in value from over $2.00 at the start of July, suffering from massive sell-downs across the stock market and less than favourable calls from some research houses.

As part of the 'active management of its balance sheet', Olam said yesterday that it would buy back for cash up to US$150 million of the convertible bonds.

Not only would the move cut gearing, it would also 'reduce refinance obligations in FY2011, when the convertible bonds can be put back to the company for redemption through cash or shares', Olam told BT.

'This buy-back also reduces the potential dilution of equity in 2011.'

According to DBS Vickers, the cash outlay could be around S$114.75 million assuming that Olam makes the repurchase at US$0.50 to the dollar. The group should also book gains of a similar amount, said analyst Ben Santoso.

'The corporate action shows the group's ability to employ cash for maximum value and return excess cash, which would otherwise be unutilised due to lower acquisition opportunities.'

Olam said in a presentation last month that it would hold back on merger and acquisition activities until credit markets stabilise and capital availability improves.

Nonetheless, the convertible bond buyback would only cut Olam's borrowing cost by around $1.2 million for FY2009, said Mr Santoso. 'Olam's FY09 net gearing (non-adjusted) is expected to come down substantially to 275 per cent from 414 per cent calculated last year.'

Olam had cash, bank balances and fixed deposits of $428.6 million and total borrowings of $2.79 billion as at Sept 30.