RRJ Capital Ltd. plans to buy bonds and shares issued by Olam International Ltd. (OLAM), the commodity supplier targeted by short-seller Carson Block, a person with knowledge of the matter said.
RRJ, the fund run by former Goldman Sachs Group Inc. banker Richard Ong, yesterday acquired rights to $90 million of Olam bonds, the person said, asking not to be identified as the information is private. Along with the bonds, RRJ will receive warrants for Olam shares which it plans to exercise after three years at a cost of $60 million, the person said.
Olam’s bonds and shares are down since Block questioned the company’s accounting methods and expansion strategy in November. The world’s second-largest rice trader said on Dec. 3 that it will offer $750 million in bonds and as much as $500 million in warrants to address “lingering doubts” raised by Block.
Alan Ngo, a managing director at RRJ, and Aditya Renjen, Olam’s general manager of investor relations, both declined to comment on the trade.
RRJ, based in Hong Kong and Singapore, bought the rights to the bonds yesterday at around 7 U.S. cents each on their last trading day, the person said. The rights traded at about 12 U.S. cents on Jan. 7, the first day of trade, according to data compiled by Bloomberg.
Olam shares, down 8.6 percent since Block first questioned its finances, closed at S$1.59 in Singapore today. Olam’s 5.75 percent bonds due September 2017 were quoted at 92.9 cents on the dollar, according to Bloomberg prices.
The notes were quoted at 97 cents on Nov. 19, the day Block first said he was short Olam, and fell to a record low of 83.2 cents on Nov. 30, Bloomberg prices show.
The warrants that will be issued with Olam’s five-year, 6.75 percent-coupon bonds can be exercised at $1.291 a share in three years, the company has said.
RRJ’s team includes Ong’s brother, Charles Ong, who left his post last January as senior managing director of special projects at Temasek Holdings Pte, Singapore’s state-owned investment company and Olam’s second-biggest shareholder. RRJ teamed up with a group including Temasek in 2011 to purchase Frac Tech Holdings LLC, a Fort Worth-based hydraulic-fracturing services company.
When Richard Ong ran Hopu Investment Management Co., the Chinese private-equity fund bought a 20 percent stake in China Mengniu Dairy Co. (2319) with Cofco (Hong Kong) Ltd. in 2009. That investment came just 10 months after tainted milk killed six children in China and sickened 300,000. Hopu sold its 6 percent stake in Mengniu in June last year to Denmark’s Arla Foods amba.
Olam International was cut to sell from buy by UBS AG this month on concerns that its financial health may be deteriorating. Block had rated the company a “strong sell” in a report by his research firm Muddy Waters LLC and said the company may fail.
Olam has refuted Block’s claims and said earlier this month that it’s in the best financial health since its 2005 initial share sale.
Temasek has said it would back the bond offering and will buy any rights not taken up by other investors. Kewalram Singapore Ltd., the commodity trader’s biggest shareholder, also said last month it will subscribe to the bonds.
Kewalram will take up $151.3 million of bonds and 78.3 million warrants in the offering, according to an Olam filing yesterday. Olam’s Chief Executive Officer Sunny Verghese subscribed to $34.9 million of bonds and 18 million warrants, a separate filing yesterday shows.
The offering is “extremely expensive debt and equity capital,” Michael Dee, a former Temasek senior managing director, said in an article published in Singapore’s Business Times newspaper last month. Olam’s priority should be to reduce debt, Dee later told Bloomberg News.
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