Published June 2, 2009

Temasek to plonk $437m into Olam

Kewalram group, Verghese to back deal; some of the funds may go into fresh acquisitions

By CHEW XIANG

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(SINGAPORE) Temasek Holdings is investing $437.5 million in Olam International, the listed commodities supplier said yesterday. Analysts called the Singapore investment company's foray into commodities an expected diversification into a less risky sector.

Mr Verghese: 'Obviously we expect Temasek to be a long-term strategic investor'

'It'll be taking a closer look perhaps at commodities; their primary emphasis will be on diversification,' David Cohen of Action Economics told Bloomberg. 'They were burnt by their exposure to the financials.'

Breedens Investments and Aranda Investments, two wholly owned Temasek subsidiaries, will pay $1.60 a share for about 273.46 million new shares in Olam - or about 13.76 per cent of the post-issue share capital of the company. If the deal goes through, Temasek will be the second-largest shareholder in Olam, a supplier of 20 mostly agricultural or food products to 6,500 customers worldwide.

David Heng, managing director, investments, at Temasek said the deal 'fits well with our investment theme of supporting emerging global champions'. Temasek owned a significant chunk of Olam from 2002 but sold off its entire 4.86 per cent stake in March 2006 for $118.6 million at $1.57 a share.

Speculation has been rife that the appointment of Charles Goodyear, former boss of mining group BHP Billiton, as Temasek CEO from October could signal a shift into commodities and away from investments in financial instruments.

Chris Sanda, senior investment analyst at Daiwa Institute of Research, said: 'Temasek tends to go through themes in investing and Olam has done a very good job in explaining its themes to them.' He said the company's earnings tend to be more resilient as soft commodities are less affected by global demand cycles, while growing middle-class consumption of food products should keep volumes buoyant. Raising cash from equity also makes sense as term-debt markets are still frozen, Mr Sanda said.

Olam chief executive Sunny Verghese said: 'Obviously we expect Temasek to be a long-term strategic investor. We know Temasek is interested in this space and they believe we have a clear strategy and a good management to execute it.'

Temasek has requested and will be given a seat on the board, he added. 'They did very well in their first investment in Olam and I'm sure they will expect to do as well in this investment.' Analysts attributed the earlier sale to profit-taking.

Mr Verghese said 80 per cent of the money raised will go towards return-on-equity accretive acquisitions as well as organic growth.

'We have a very active and deep investment pipeline of about 13 or 14 targets and we will start putting this money to work in the next three to six months,' he said, adding that the funds raised would not be used to reduce the company's gearing. The company has some $3 billion of debt, mostly for working capital purposes.

The deal is subject to shareholder approval. The Kewalram group and Mr Verghese, who together hold 32 per cent of existing shares, have undertaken to vote in favour of the share placement. Other members of Olam's management hold another 9 per cent of the company and are likely to support the placement as well.

While the issue price of $1.60 is at a 17 per cent discount to the volume weighted average price of $1.937 last Friday, the stock rose 22 cents or 11.3 per cent to $2.16 yesterday following the early-morning announcement.

'This will enable them to go after deals they couldn't go after before,' said an analyst for a foreign brokerage.

Olam traded as low as 88 cents a share last December but has recovered strongly since.