Thursday, 20 March 2014

Best Performing Blue Chip in 2014: OLAM?

Olam International

It can be instructive to look back at some of the market’s biggest movers in a certain period of time to get a feel of what has happened and what’s going to happen

Over the past two-and-a-half months since the start of 2014, Olam International (SGX: O32), which engages in sourcing, processing, packaging, merchandising and exporting agricultural products, has been the best performing blue chip within the Straits Times Index (SGX: ^STI). Even as the latter has floundered with a 3% drop to 3,073 points from 3,167 points at the end of 2013, Olam has gained some 44.6% to S$2.22.

While short-term price movements can sometimes occur for befuddling reasons, Olam’s was clear – a consortium of Olam’s major shareholders have elected to acquire the company’s shares at a price of S$2.23 from other shareholders.

Olam’s shares had hit a post-Global Financial Crisis high of S$3.41 on November 2010 but had steadily declined to S$2.00 on 13 March 2014 before news of the voluntary offer for its shares broke through last Friday on 14 March 2014.

Nomura says Olam worth more than Temasek's S$2.23 per share offer

Nomura estimates that Olam's earnings could grow by more than 20 per cent per annum in the next three years

Japanese financial services group Nomura on Wednesday advised Olam International shareholders to hold onto their shares, saying it believed the commodities firm was worth more than the S$2.23 a share offered by Temasek unit Breedens.

Singapore-listed Olam is one of the world's biggest traders of coffee, rice and cashew nuts. The company is worth around S$5.4 billion based on Temasek's offer price.

"From a long-term perspective, we still see significant value in Olam, as various gestating assets start contributing over the next few years," Nomura analysts Tanuj Shori and Bineet Banka wrote in a note.

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Nomura advises Olam shareholders to reject Temasek unit’s offer

Japanese financial services group Nomura on Wednesday advised Olam International shareholders to reject Temasek unit Breedens’ takeover offer of S$2.23 a share, saying it believed the commodities firm was worth around S$2.50 a share.

Singapore-listed Olam is one of the world’s biggest traders of coffee, rice and cashew nuts.

The company is worth about S$5.4 billion based on Temasek’s offer price.

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Nomura recomends hanging on, OCBC says accept

Nice to see that Nomura agrees with me on Olam, one of the world’s biggest trader of coffee, rice and cashew nuts. Nomura advised Olam shareholders to reject Temasek unit Breedens’ takeover offer of S$2.23 a share, saying it believed the commodities firm was worth around S$2.50 a share.

Citi Research in a note last Friday that it does not expect a high success rate for the offer, given that Olam is currently midway through working its asset portfolio towards full contribution.

OCBC recommended that investors accept the offer or sell into the market if the price there is higher “While things are moving in the correct direction, the medium-term outlook for commodities, especially hard commodities, continues to remain quite challenging in our view … do not expect to see a competing offer for Olam.”

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Financial Services group Nomura said on Wednesday that Olam shareholders should not accept Temasek's take-over offer.

Temasek unit Breeden had initially given an offer to buy over shareholders' shares at $2.23 a share. However, Japanese company Nomura said that the shares were worth around $2.50 each.

Nomura also explained in a note that Singapore-listed Olam's earnings could grow up at least 20% every year for the next three years.

Temasek buyout throws sovereign weight behind Olam

Temasek is extending a protective arm around Olam. The Singapore state investor is leading a group which has offered to buy the 48 percent of the commodity trader it doesn’t already own at a valuation of $4.3 billion. The buyout should help to shield Olam from sceptical short-sellers – and remove any doubts over its creditworthiness.

It’s not the first time Temasek has come to Olam’s aid. In December 2012, the group underwrote a $712 million convertible bond issue designed to see off short-sellers like Muddy Waters, which had challenged Olam’s accounting. Yet despite Temasek’s support, and a subsequent strategy overhaul designed to improve cash generation, Olam’s valuation has lagged those of its listed peers.

For that reason, the consortium’s S$2.23-a-share cash bid should find plenty of takers. The offer is only an 11.8 percent premium to Olam’s most recent closing price, and comes after near-40 percent rally in recent months. But it’s a price shareholders have not seen since the summer of 2012, when analysts started raising doubts about the company’s soundness. Besides, there’s no prospect of a rival bid. The consortium says it wants to keep Olam as a listed company. But if it ends up with more than 90 percent of the shares, Singapore’s stock exchange could cancel Olam’s listing.

Moody's: Olam bid by Temasek credit negative

The offer to buy the remaining shares in Olam International is credit negative for Temasek Holdings, though it will have minimal financial effect on the investment firm, rating agency Moody's said yesterday - PHOTO: REUTERS

THE offer to buy the remaining shares in Olam International is credit negative for Temasek Holdings, though it will have "minimal" financial effect on the investment firm, rating agency Moody's said yesterday.

Meanwhile, there were market murmurs that the surge in Olam's share price prior to the announcement on Friday could have been partly due to interest by other firms in acquiring the agri-commodities trader.

Bringing another company under the Singapore umbrella "negatively pressures portfolio liquidity", said Moody's vice-president Alan Greene in a report. "The high concentration of investment in Singapore-listed companies and the large size of each shareholding reduce portfolio liquidity."

Is Olam price spike due to market misconduct?
SGX reiterates regulatory stance in response to Olam
Temasek offer lifts Olam clear of Muddy Waters
Temasek takeover of Olam a poorly kept secret?
Olam gets another Temasek boost

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SGX reiterates regulatory stance in response to Olam

The Singapore Exchange (SGX) said that it takes a serious view of all market misconduct in breach of the Securities and Futures Act, including potential insider trading and manipulation activities.

The regulator was responding yesterday to news reports highlighting Olam's escalating share price ahead of Temasek Holdings' offer for the company last Friday. In the six weeks since Feb 3, Olam's counter had jumped 34.8 per cent, leading market watchers to ask if some had gotten wind of the deal. Others questioned why Olam did not request for a trading halt earlier, and was not queried by SGX.

"We will spare no effort in conducting investigations on possible transgressions and will cooperate with regulatory agencies to enforce the law against offenders," SGX said in its statement.

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Temasek Shows More Committed Than Peers With Olam Offer

Temasek, which owns 24 percent of Olam according to data compiled by Bloomberg, is the company’s biggest shareholder

Temasek Holdings Pte unit’s offer to take over Olam International Ltd shows Singapore’s investment firm is more active compared with other state-owned investors, according to the Sovereign Investment Lab.

Breedens Investments Pte on March 14 said it proposed to purchase Olam in a deal that values one of the world’s top three coffee and rice traders at S$5.3 billion ($4.2 billion). Breedens is offering S$2.23 cash per share, a 12 percent premium to Olam’s closing price of S$1.995 before the bid.

Temasek, which defines itself as “an active investor and shareholder,” owns equity stakes of 10 percent or more in at least 35 listed companies, while China Investment Corp. only has three similar-sized holdings, according to datacompiled by Bloomberg. Norway’s state fund, the world’s biggest, is banned from owning more than 10 percent, according to its website, and Korea Investment Corp. doesn’t own stakes of more than 1 percent in major listed companies, according to Bloomberg-compiled data.

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Temasek offers to buy Olam, values firm at S$5.45b

An employee of Olam International loads a truck with boxes of cashew nuts for export in Brazil on Dec 5, 2008. Photo: Olam International

The Republic’s state investor Temasek Holdings has offered to buy all shares in Olam owned by minority shareholders in a cash deal that values the commodity trading firm at US$4.3 billion (S$5.45 billion).

The deal will be done through a Temasek unit, Breedens Investments. Breedens, along with Olam’s family share holders, members of its executive committee, and Arandda Investments, another Temasek unit, already hold around 52.5 per cent of Olam shares.

“Breedens wishes to increase its shareholding to support Olam’s strategy and growth plans for the long term,” it said in a statement.

Temasek unit's offer for Olam is credit negative: Moody's

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Olam, Temasek and a huge pile of debt

Temasek’s offer to buy out Olam in a S$2.53 billion deal comes as the commodity trader continues to pile on debt. While Olam’s politically well-connected management and shareholders may appreciate the sovereign wealth fund’s backing, this is a deal which ticks all the wrong boxes for Singapore.

Olam’s management have been fending off critics of their financials and accounting for years. While Carson Block’s very public decision to short the stock in 2012 was widely reported, less well-known is the fact that top Asian equity house CLSA incurred the commodity trader’s wrath the year before over a research note that raised some of the same concerns. And while the public response from Olam has always been defiant, privately management have admitted defeat – tearing up a flagship six-year plan to generate US$1 billion in profits by 2016 and slashing the debt fuelled growth that Block saw as unsustainable.

Expensive failure - It is quite spectacular how badly Olam has failed to deliver on its financial goals. It was in 2010 that Olam launched their strategic plan – on the face of it a relatively simple one – to borrow money, grow the business, grow profits and then pay back the money. Yet while the money was borrowed, the profits never materialised. The plan set out a specific goal to reach US$1 billion in annual profits by 2016, but Olam has come nowhere near achieving that number.

Olam: Hang on, buy for the ride?

The most immediate beneficiary of the buyout is Olam’s creditworthiness. Despite Temasek’s minority shareholding, the company has faced persistent queries about its debt load. That’s particularly damaging for a trading house like Olam, which relies on the confidence of its counter parties. In future, creditors will view Olam as an extension of its sovereign parent.

My next piece of advice to those TRE readers who keep on cursing Temasek and its CEO but who end-up banging their balls in frustration: Go analyse SMRT.

Temasek and Ho Ching haters should come up with new lines of attack. The world has moved on from the crisis of 2007-2009. The recovery of global markets means that post Temasek’s losses on ABC Learning, Barclays and Merrill Lynch/BOA, performance has been in line with the recovery in world equity markets. Two of its dogs are dogs no more: Shin is 50% up from its purchase price (though how to exit is an issue), and go check the price of Chesapeake. And the glee over Olam has turned to tears as Olam powers ahead, giving Muddy Waters a bloody nose. Big playpen bully has met a bigger bully. True blue S’poreans and xenophobes should be cheering Ho Ching on, not cursing her. But then hatred of the PAP is often irrational.

A Chance To Sell Olam At $2.23?

Commodities trader Olam International (SGX: O32) has today announced that a consortium of investors and existing shareholders, led by Breedens Investments Pte. Ltd., would be offering to buy over shares of the company that other shareholders own at price of $2.23 each. Concurrently, Breeden also has the intention to make an offer for Olam’s outstanding convertible bonds and warrants.

Olam, which does sourcing, processing, warehousing, transporting, shipping, distributing, and marketing for various kinds of agricultural products like cotton, wood, coffee, cocoa, palm, rice, and sugar among others, last closed at $1.995 yesterday. The offering price thus represents an 11.3 percent premium over its last transacted price.

Breedens is an indirect wholly-owned subsidiary of Temasek Holdings, which is one of the investment arms of the Singapore government. The rest of the consortium includes Aranda Investments Pte Ltd. and Olam’s founding family and executive committee. Together, they collectively own 52.5 percent of Olam’s shares with Breedens and Aranada controlling a collective 24.6 percent stake in the company while the other two make up the remaining 27.9 percent.

Temasek offer lifts Olam clear of Muddy Waters

IN a move seen as highly unusual, Temasek Holdings launched a cash offer for all Olam shares that it does not already own, leaving the market rife with speculation over why it did so.

Olam shares were clear gainers, and surged yesterday to the offer price of $2.23 after a trading halt was lifted at 11am. The stock closed at the same level, after shares worth $143 million changed hands. The offer values Olam at $5.33 billion.

A Temasek unit, Breedens Investments Pte Ltd, is leading a consortium including Olam's management and its founding firm, to put up $2.53 billion to buy the rest of the commodity trader. The group already owns a combined stake of 52.5 per cent.

Muddy Waters’ Block Gives Olam Credit for Fixing Some Issues

Olam (OLAM) International Ltd. deserves praise for addressing some of the shortcomings in its business, according to Carson Block, who two years ago said the shares were worthless.

The Singapore-based commodity trader saw its stock rise 12 percent today after a unit of the nation’s state-owned investment company offered to buy it in a deal that values Olam at S$5.3 billion ($4.2 billion). In November 2012, short-seller Block compared the company to failed American energy merchant Enron Corp., saying it would probably collapse.

“Olam gets credit for taking steps to mitigate some of the issues we identified,” Block wrote in an e-mail to Bloomberg News today. “The Singapore sovereign wealth fund’s timing is interesting given that Olam has $1.2 billion of debt maturing this year and is still burning cash, and that the stock has inexplicably outperformed in the past month.”

Temasek-led group offers $2.1 billion for remaining Olam shares

A Temasek-led shareholders group has offered to pay $2.1 billion in cash for shares in Olam International Ltd (OLAM.SI) they don't already own, putting the heft of the Singapore state investor behind the commodity trading firm's weak balance sheet.

The proposal comes after a tumultuous stretch for Olam, one of the world's leading traders in rice, coffee and cocoa, that saw it come under attack from short-seller Muddy Waters in late 2012 for its accounting practices.

Olam denied the short-seller's claims, gained financial support from Temasek TEM.UL and drew up a plan to cut capital spending and debt. Its stock surged some 40 percent since late January prior to the offer announcement.


Singapore state investor Temasek Holdings has offered to buy all shares in Olam owned by minority shareholders in a cash deal that values the commodity trading firm at $4.3 billion.

The deal will be done through a Temasek unit, Breedens Investments. Breedens, along with Olam's family share holders, members of its executive committee, and Arandda Investments, another Temasek unit, already hold around 52.5 percent of Olam shares.

"Breedens wishes to increase its shareholding to support Olam's strategy and growth plans for the long term," it said in a statement.

Good Money Chasing Bad

According to its Annual Report, Temasek’s Total Shareholder Return (TSR) for the year as of 31 March 2013 was 8.86%. Compounded annual return to shareholder over the past decade was 13% while TSR since the company’s inception in 1974 was 16%. Impressive.

Moody says different. Explaining why the offer to buy the remaining shares in Olam International is credit negative, Moody's vice-president Alan Greene said Olam's dividend yield of 2 percent in 2013 is "well below" Temasek's overall dividend income yield of about 3 percent in the year to March 2013.

Temasek must have a basket of super performing investments to make up for the proposed cash injection into a commodities firm with a gross debt of $9.1 billion and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) of just $1.2 billion. Analysts said they did not expect a competing offer for Olam; only fools rush in where angels fear to tread.

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My suspicions were raised yesterday by the news that Temasek has put up $2.1 billion dollars to buy out any remaining shares they do not already own in Singaporean commodities trading firm Olam International Limited (“Olam”).  The offer was inexplicably generous. Though Temasek is only offering 12% above the stock’s last traded price, the offer is in fact  a staggering 55% above where the shares had been trading on February 4th  2014.

Why would Temasek be willing to pay such a high price for Olam no matter what the cost to its stakeholders, the citizens of Singapore? Naturally, at that 55% premium it can expect to get the vast majority of the shares except for those held by the founding shareholder and the company’s management, who have agreed not to tender their shares beyond a set percentage.  It would also seem that upon acquisition Temasek intends to take Olam private which means it would become unlisted. Unlisted holdings within an already secretive Temasek are bad news for Singaporean citizens.  Being unlisted allows a firm to hide a weak balance sheet or even catastrophic losses without the pressure of Singaporean public scrutiny and without the need to publicly report quarterly and annual earnings.

As you all know I am at the forefront of demanding greater transparency from Temasek. One of the reasons I have campaigned for Temasek to be listed publicly is so that we CAN apply public scrutiny and have complete transparency over its reported earnings. At the very least Temasek should produce the level of detail and transparency in its annual reports that Norway’s sovereign wealth fund does, allowing the figures to be scrutinized by Parliament.

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Just had to write about this interesting little tidbit I saw today about Temasek and Olam.  According to news reports, Temasek through a subsidiary is going to buy Olam at a 12% premium to the current share price.  This is an interesting development and to me raises a couple of questions.  First, I am intrigued that Temasek is paying a 12% premium after the stock has already increased 30% since the first of the year.

This means that Temasek is either paying nearly a 45% premium to what it could have paid just two months ago and is really slow to spot a value in its own portfolio or insiders were buying the stock in advance of a buy out offer they knew was coming.  This 30% increase is even more abnormal considering the Straits Times (Index) is essentially flat for the year.  Neither scenario is particularly attractive.
Second, this seems like a very oddly timed buy out.  Prior to the first of the year, Olam had traded primarily in the $1.50-1.75 SGD range and this follows on the announcement that profit declined 13%.  If Temasek felt this strongly about Olam and its long term business prospects, it would seem to be a better proposition to buy at the bottom of the market because you know the business well and believe the market is undervaluing the business. Not wait until there is a 30% increase in two months and then offer a 12% premium.  The general philosophy of long term investors is buy low and sell high.  I am just a professor though, so what do I know.

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SGX’s PR spin on Olam takeover is indefensible

As an academic who only has to deal with an institution that just wishes I kept my mouth shut more but doesn’t really press the issue (with some very real exceptions), I have the ability to speak the truth as I see it and not worry about public relations.  In a way I feel bad for public relation guys that have to spin indefensible positions at the behest of their masters.

Last week after hearing about the impressive run up of Olam prior to the Temasek buyout, I raised the possibility that the price gains prior to the buyout raised concerns.  Enter the Singapore Stock Exchange, who released a statement saying that there was no concern about information leaks because analysts had raised their price target for Olam.  This is a weak response at best because as the Wall Street Journal noted
Even after all those upgrades, the consensus target was only 1.68 Singapore dollars (US$1.33), according to FactSet, just a single Singapore cent higher than at the start of the year and far below the S$2 the stock hit just before the deal was announced.
Just to be clear, the Singapore Stock Exchange is claiming that an increase in the consensus estimate to $1.68 explains the one month move from $1.43 to $2.  Interestingly,according to Thompson/FirstCall, only two brokers changed their hold recommendations to buy out of a total of 18 with buy/sell recommendations.

GX denies wrongdoing and insider trading in Temasek’s takeover of Olam

In my blog yesterday (16 March 2014) I wrote about the inexplicably high offer that Temasek had made to buy out Olam, a Singaporean commodities firm hemorrhaging cash and burdened by debt repayments falling due.  As this offer was inexplicably generous and the timing irrational I feared that at least US$2.1 billion that belongs to the citizens of Singapore was being squandered  recklessly and that Temasek was trying to mask its real performance by increasing the proportion of  private companies in its portfolio.

At the end of yesterday’s blog I also said that in the period before the deal was announced, I feared Olam and Temasek had breached the Singapore Takeover Code which is regulated by the Singapore Securities Industry Council.  The Takeover Code is designed to protect shareholders in the run up to an announcement and. Our Singaporean code is mirrored on the UK version.

Yesterday I said “ (the code) places very clear obligations on both the offeror and offeree companies to keep any offer discussions secret. In the event of an unusual movement in the share price of the offeree company or an increase in turnover they are required to make an immediate announcement as to the possibility of an offer.”

Temasek should not fear transparency if it has not incurred losses

I read with concern Temasek’s offer of $2.23 per share to take Olam private. (taking it private is just a matter of time)

Prof Christopher Balding raised a valid concern that “Temasek is paying a 12% premium after the stock has already increased 30% since the first of the year”. Kenneth Jeyaretnam has also offered his assistance to “any MP, NCMP or NMP who wishes to raise this issue in Parliament”. link The SGX must conduct a proper investigation instead of providing a stupid announcement that justifies the share price rally. link

Temasek’s offer of $2.23 per share values Olam at $5.45 billion. link However, Olam is struggling under an increasing mountain of debt which increased from $4.3 billion in 2012 to $5.9 billion one year Although its revenue has almost doubled since 2010, it net profit has slightly decreased. link

Olam: Retail Investors suckered again

Two Ms separate GIC from Temasek. One has a method the other is just mad

I welcome ST willingness to have this story. Those of us more familiar with markets know that Temasek's investment in Olam was a mistake. In this article I read the suckers are the retail investors bidding the shares up. The convertible and debt buyers as expected were shrewder.

Olam has the potential to embarrass and my guess is that Temasek being bigger than the casino is fully capable of doubling down until it wins. Without the lifeline it offered earlier, Muddy Waters would have taken it straight to the cleaners.

Meanwhile I gathered that Olam's senior ranks are almost completely Indian. Well that is no good for diversity but what is truly terrible is the way they spend money. This is not difficult to find out. Just talk to some former secretaries.

Proof that Temasek ignores Minister’s instruction

I was on vacation when the Olam news broke. Much has been said about Temasek’s proposed acquisition of what many regard as a high risk enterprise. Having returned to my office workstation, I will put Minister of State for Finance, Mrs. Josephine Teo’s statement in Parliament, “Temasek must continue to invest with the aim of achieving good, risk-adjusted returns over the long term” to empirical test.

To do so, I have analysed through 5 years of price data of Olam stock (Olam SP) and as a basis of risk adjusted returns, also assess the same 5 years of price data of the GS Global Commodity Index (GSCI) and the Straits Times Index (STI). For good order and as a basis for sector comparison, I will also look at the price data of Noble (NOBL SP), Olam’s Singapore incorporated, foreign owned rival. A technical caveat to note is that since commodity prices are quoted in US$ (so is GSCI), the mathematics are crunched on data that are adjusted to US$ in order to compare like for like.

The following table provides the quantitative analysis of Olam and by comparison Noble.

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Olam – Is it a bail out using public fund?

The acquisition of Olam by Temasek is raising eyebrows and frowns from many quarters. Kenneth Jeyaratnam has commented negatively on it. Below is Christopher Balding’s article on the buy out of Olam. Temasek seems to be very bullish in this commodity trading company. It came out in full support when it was shorted down by Muddy Waters a year ago. Now it is making an offer with the possibility to buying over the company at a high price of $2.23 when it could have had the company for a song when it was under attack. Why? Why buy at such a huge premium and not when it was about 90c? Another case of buying high? OPM?

Why is Temasek supporting a foreign owned company to want to commit $2b on it when it could buy it for less than half the present price? Another long term strategy stuff?

‘Just had to write about this interesting little tidbit I saw today about Temasek and Olam. According to news reports, Temasek through a subsidiary is going to buy Olam at a 12% premium to the current share price. This is an interesting development and to me raises a couple of questions. First, I am intrigued that Temasek is paying a 12% premium after the stock has already increased 30% since the first of the year.