Olam: Snake bites itself

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.”

Olam: Snake confuses mongoose

Olam proposed an underwritten rights issue of US$750m in principal amount of 6.75% bonds due in 2018, along with 387.4 million free detachable warrants. The issue price of the bonds will be 95% of the principal amount and the gross proceeds from the issue of the bonds are US$712.5 million. Terms of bond are generous.

Olam said the transaction was fully backed by  Temasek which owns a 16% stake in the company. Temasek’s commitment “is a very strong, decisive action (for investors) not to have any worries about any of the allegations,” Olam’s CEO said.

The issue is underwritten by four major bank creditors: Credit Suisse, DBS, HSBC and JP Morgan. Again another sign of confidence.

So Temasek and the banks are onside. Goes without saying that the Indian conglomerate controlling Olam will subscribe for its share: It would, wouldn’t it?

And the shortists will have to cover their positions as investors recall their shares to make sure they get their rights.

Yr move, mongoose.

PS (at 8.50am): Gd counter by snake (must be King Cobra) to offer to pay for credit rating. Ang Moh Kaws must never underestimate Indians.

Update (1.15pm)

Shares of Olam climb more than 8%

Olam: Mongoose bites snake

Muddy Waters offers to pay for Olam to get debt rating. It is a cheeky response to Olam’s “shock and awe” response (constructive, nation-buildingST’s description) to its allegations.

Wonder what excuse Olam will give when refusing to accept offer? After all Temasek, its investee, has a debt rating. And it is a SWF

Wonder what Olam’s banks’ will think if it rejects offer?

 

Olam: Ang Moh Kaw bites

It’s been over a week since  Muddy Waters made allegations about the accounts of Olam. Since then Olam has come out swinging, refuting the allegations and suing.

Yesterday evening, the report was made available. Most of the issues have been flagged by analysts earlier. But there are issues about the restatements of accounts that don’t affect profits and capex that need addressing by Olam.

Remember Temasek owns 16% of Olam. So it too will be studying the report.

Olam: Temasek’s actions key

Olam fights back.

As Temasek is the second largest shareholder, will be interesting to see what it does. If it doesn’t buy Olam shares, Olam will remain under a lot of pressure. If it does buy, TRE, TOC readers and other cowboys (esp from Facebook) will be mindlessly attacking Temasek, juz because ang moh says Olam shares are a short.

 

 

If China slows down, ASEAN beneficiaries

(Or “What stocks, ETFs to buy”)

A  China slowdown need not be bad for everyone. Mr Frederic Neumann, Regional Economist at HSBC, distinguishes between hard and soft commodities. A Chinese rebalancing could actually be good for soft commodities*, such as wheat and soybeans*, if household spending were to rise.

Brazil’s loss, in other words, could be Argentina’s gain. Other commodities, such as palm oil**, used in processed foods, may also do better.

That could benefit countries such as Malaysia, which has ramped up palm oil*** production in recent years, and Indonesia**** – although the latter also produces hard commodities including coal.

On the other side of the ledger, some big oil importers***** could benefit from the weaker prices that a Chinese slowdown might produce.

http://www.todayonline.com/CommentaryandAnalysis/Commentary/EDC120622-0000021/Should-we-fret-about-Chindown?

*Think Olam, Wilmar, Golden Agri, Bumitama Agri, Kencana Agri and First Resources

**Think Wilmar and the other SGX plantation stocks.

***Think Felda, Sime Darby, United Plantations, IOI, Genting Plt, KL Kepong, TSH, Oriental.

****Think Astra Agro and London Sumatra Indonesia. Any other Indon listed plantations cos to think about? Do remember that the SGX-listed planters are mainly Indonesian planters and many of them are relatively new, giving them an advantage over the older Malaysian plantation players. Malaysian planters have also bought land in Indonesia partly because land in Malaysia is getting too expensive even in East Malaysia.

*****Think ETFs on Singapore, Thailand and Vietnam.

More bad news for Noble, Olam and Wilmar

The FT reports that Chinese importers are requesting trading houses to defer shipments of commodities. Sometimes they have broken agreements by refusing to accept deliveries.

Commodities specifically mentioned are iron ore and thermal coal (Noble’s specialities), cotton (Olam speciality) and soyabeans (Wilmar is world’s boiggest crusher). No wonder the price of these stocks keep weakening.

BTW, until I read below, I didn’t realise Noble is a big player in coffee and cocoa (but revenue is “peanuts” compared to iron ore and energy).

http://seekingalpha.com/article/572831-commodity-trading-firms-bunge-and-noble-offer-investors-good-value

What a sick joke on Olam

Stock has collapsed today because analysts warned of cuts to full-year estimates after the commodity trader reported disappointing earnings  (Q3 net profit falls 22.5%  to S$98.7 million) and warned of a weak outlook.

The sick joke is that 0ut of 24 analysts tracking Olam, 18 had a buy or strong buy rating, four rated it a hold and only two had a sell rating, according to Thomson Reuters data as of Tuesday (yesterday).

CIMB bearish on commodity supply chain stocks

CIMB doesn’t like commodity plays and has made negative comments abt midstream commodity supply chain players Mewah, Noble and Olam.

Not time to buy yet: Noble is trading at its eight-year historical mean, while Olam is trading at 1.5 standard deviations below its mean and Mewah is trading at 2.5 standard deviations below mean. Despite their more modest valuations, we believe it is too early to turn bullish on this sector. Consensus estimates do not appear to have fully reflected their earnings risks, in our view. Our FY12 earnings per share estimates for all three stocks are 4-46 per cent below consensus. Further downgrades by the Street may be de-rating catalysts.

OCBC picks for 2011

Like other brokers, OCBC is bullish for next yr. But there are some picks that are unique to OCBC.

Our picks for 2011 are Ascott Residence Trust, Biosensors International Group, CapitaLand, DBS Group Holdings, Ezra Holdings, Genting Singapore, Hyflux, Pacific Andes Resources Development, Keppel Corporation, Mapletree Logistics Trust, Noble Group, Olam International, Sembcorp Marine, StarHub, United Overseas Bank, United Overseas Land and Venture Corp.