SINGAPORE - l am played its Temasek trump card yesterday against the onslaught by short-sell research firm Muddy Waters, unveiling a rights issue that will raise up to US$1.25 billion in capital.
The rights issue will consist of up to US$750 million (S$914 million) in five-year bonds, to be accompanied by warrants that will raise up to US$500 million upon conversion.
While the deal is fully underwritten by Credit Suisse, DBS, HSBC and JP Morgan, Olam has gone the whole hog by adding another layer of underwriting.
Temasek, which owns about 16 per cent of Olam, has thrown its weight behind the commodities-trading firm, not only committing to take up its pro-rata entitlement of the rights, but to also sop up 100 per cent of the rights not subscribed to by existing shareholders.
At a hastily called briefing for media and analysts last evening, Olam's bankers turned out in full besuited force as its chief executive Sunny Verghese gave a presentation on the deal and attempted to send a message to the markets and to Carson Block, the Muddy Waters man shorting his firm's stock.
Mr Verghese said: "We wanted to address the pressures on the equity side with the short positions, as we all know. There's (also) pressure on the bonds side. We believe that this decisive, bold, large issuance should arrest any lingering doubts that anybody has about anything to do with our liquidity or solvency position. This is fairly unprecedented in Temasek's history... to underwrite a bond issuance (as) Temasek is an equity house (and) looks for equity returns. It reflects their confidence in our strategy and our ability to execute that strategy."
He stressed that the capital-raising exercise was not about liquidity, but more about creating a "liquidity buffer" to offset debt.
"Even if we do not raise this capital, we have ample liquidity to run our business," he said.
All in, the sums raised will be enough to cover the firm's debt obligations for the whole of FY2013, if it comes to that.
The fully renounceable deal is structured in such a way that, for every 1,000 shares an investor has, he will be able to exercise his right to 313 bonds with a face value of US$1 each.