atans1

Olam: Snake bites itself

In Accounting, Commodities, Corporate governance on 06/12/2012 at 10:00 am

Opps looks like Olam tried to be too clever by half. By calling a rights type issue but not answering two of Muddy Point’s questions (that it is spending lots of $ on lousy investments and the restatements), investors have decided to sell given that there will a lot more debt, at expensive prices, a possible dilution, and that Muddy Waters might just be right.

Then there is the cred of management: saying it had lots of cash but then calling yet another bond issue. And having to retract a statement on the approach to Temasek.

In such a confused situation, investors might as well sell esp with the year end in sight.

And on a technical issue: leaving the warrants to be priced tomorrow was asking for trouble.

All in all, management and its investment banks have not covered themselves in competency.

Update:  “The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn’t need,” said Dee. “Muddy Waters is not the issue here, it is Olam’s strategic and financial decisions that have brought this situation to a head.”

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  1. Hope more very smart investors can see thro’ as you did,cheers

  2. Olam was started in Nigeria. Got that?

  3. “All in all, management and its investment banks have not covered themselves in competency.” Hey, you got it wrong. The investment banks who got in the deal should be given a big bonus – they did very well. Maybe, even “deal of the year” award. Think about it – the real underwriter here is Temasek, not the banks. When a sovereign fund publicly says that it will soak up the entire offering (ie. not just it will subscribe to its portion but will soak up what’s not taken up), its de facto the underwriter. In such a situation, every bank in town will want to participate and “underwrite” the deal. Its no lose. Especially since its clear that the only directive here is to “sell everything”. Because failure to sell sends alarming signal. In other words, the issuing company is in a ridiculous situation of essentially not caring about the cost of debt. Given such a situation, the banks then have it both ways – zero underwriting risk plus license to price deal as high as is needed. The real losers are Temasek and Olam. Its the same kind of over-confidence and sheer bravado that led Temasek to invest way too early in Citibank and UBS. And now that bravado led it to declare its confidence in Olam and (gulp…) undertake to soak up everything. Stupid isn’t it?? Meanwhile Olam is just digging a deeper hole for itself. More expensive debt to handle debt. Debt upon debt. I only hope this explodes around 2015 or 2016.

  4. Mongoose bites the snake,
    then Snake bites itself,
    … and now …
    the savior of the Snake bites the Snake too :
    http://www.bloomberg.com/news/2012-12-06/olam-plunges-after-dee-calls-for-share-sale-singapore-mover.html
    PS : Michael Dee is ex-Temasek’s director. Another egg in the face on Temasek.

  5. Isn’t Temasek a pension-like fund? If so, is it following investment objectives and guidelines for best practices of pension funds? They should not act like cowboys with other people’s pension funds. This is a super speculative gamble and can easily blow up in their face.

  6. Banks underwriting fees are paid by Olam, since they are the issuer and the banks provide service. Temasek will absorb everything so effectively no underwriting risk to banks.

    Will this be someone’s waterloo ?

  7. Uncle Bro…….I thought you were praising Indians at the helm were more shrewder than ang mo’s? Never doubt a ang mo after other people’s monies and an indian whose brain is bigger than his/her posterior

  8. JG

    Did you go thru Michael Dee’s article? he had said that it was a sweet deal for Temasek but definitely not a sweet deal for others.
    Not sure what egg you are talking about in the BT article.

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