Olam International Ltd. (OLAM), the commodity supplier targeted by short-seller Carson Block, raised $712.5 million from a 10 percent-oversubscribed bond sale, which was backed by its two largest shareholders.
Kewalram Singapore Ltd. and Temasek Holdings Pte took up all of their entitlement of bonds, which were were priced at 95 cents on the dollar, and warrants, the Singapore-based trading company said yesterday in a statement. Olam, which expects the bonds and warrants to start trading Jan. 31, said Chief Executive Officer Sunny Verghese also took up his share.
Olam, the world’s second-largest rice trader, said last month that it planned to sell $750 million in bonds and as much as $500 million in warrants to address any “lingering doubts” about its finances. Olam’s bonds and shares sank in November after Block, founder of Los Angeles-based Muddy Waters LLC, questioned its accounting and expansion strategy.
“Muddy Waters has caused greater scrutiny,” said Carey Wong, a senior analyst at OCBC Investment Research Pte. The bond sale results mean there are other people willing to put their money into Olam and the proceeds of the sale “really do come in handy. There’s no question about it,” he said.
Olam shares advanced 0.9 percent to close at S$1.63 in Singapore. That compares with a 0.6 percent gain in the benchmark Straits Times index.
Temasek, which agreed to buy any rights not taken up by other investors, didn’t go beyond its entitlement, according to Jeffrey Fang, a spokesman for the Singaporean state investment company. The offer indicates “strong support from the bond and equity markets for Olam,” Verghese said in the statement.
Olam received applications for $827 million, or about 10 percent more than the $750 million under offer, it said.
The company, also one of the world’s top six cotton traders, fell 27 percent last year in Singapore trading and is down 6.3 percent since Block first said he was short on the stock and the company was likely to fail. Olam has dismissed the claims, saying it’s in the best financial health since its initial public offering in 2005.
A short seller profits by selling borrowed shares and buying them back at a lower price. Olam’s 5.75 percent bonds due September 2017 fell to a record low of 83.2 cents on Nov. 30, from 97 cents on Nov. 19, the day Block first said he was short the stock, Bloomberg prices show.
“We maintain our belief that Olam will fail because it has squandered huge amounts of money on investments that are incapable of repaying the debt incurred to finance them,” Block said yesterday in a statement. “This financing only postpones the inevitable, while putting more investors’ funds at risk.”
Temasek increased its stake in Olam to 20 percent from 16 percent last month in a series of transactions. Kewalram Singapore is the largest shareholder with 20.2 percent, according to data compiled by Bloomberg. It said last month it would also subscribe to the bonds.
Olam shareholders approved a sub-underwriting fee to be paid to a Temasek unit by the banks arranging the sale, the company said Jan. 15.
RRJ Capital, a fund run by former Goldman Sachs Group Inc. banker Richard Ong, planned to buy Olam bonds and shares, a person with knowledge of the matter said last week. The fund bought the rights to $90 million of Olam bonds on Jan. 15, their last trading day, the person said. It also plans to invest $60 million to exercise the warrants to be issued with the five- year, 6.75 percent bonds.
RRJ’s team includes Ong’s brother, Charles Ong, who left his post as senior managing director of special projects at Temasek last January. RRJ teamed up with a group including Temasek in 2011 to purchase Frac Tech Holdings LLC, a Fort Worth-based hydraulic-fracturing services company.
The price of rights to participate in the bond issue, which traded for a week, fell about 41 percent to 7 U.S. cents on Jan. 15. They reached a high of 22.5 cents on the first trading day.
The decline in the price indicated a lack of interest from shareholders as Olam’s finances were still “far too opaque,” Michael Dee, a former senior managing director at Temasek, said in an article in Singapore’s Business Times newspaper Jan. 19.
In November, Muddy Waters offered to pay to get Olam’s debt rated, saying “investors should wonder whether the company is worried that a rating would mortally wound it.” Olam’s Verghese rejected the offer. Block reiterated his offer yesterday.
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