SINGAPORE - Olam International's nil-paid rights (NPR), which traded at a high of 22.5 US cents when they opened on Monday, yesterday plunged to an intraday low of 7 US cents in tandem with a slide to a corresponding low of $1.58 in the underlying shares.
The NPR eventually stabilised at 7.7 US cents, still a loss of 4.1 US cents or 34.7 per cent on the day, while the shares ended at $1.605, a nett fall of 2.5 cents or 1.5 per cent. A total of 169 million NPRs were traded, while 14.2 million Olam shares changed hands.
An NPR is the market's best guess at what a shareholder, who is entitled to any company's rights issue should be paid for renouncing his or her rights. Holders of NPRs after NPR trading ends would then be obliged to take up the issue by paying the company the subscription price.
In Olam's case, the company last month announced a US$750 million bond issue. A shareholder with 1,000 shares is now entitled to subscribe to 313 5-year bonds with a face value of US$1 each that carry an annual coupon of 6.75 per cent by paying Olam 95 US cents.
Some bond issues come with a "sweetener'' to make the issue more attractive and in Olam's case, the 313 bonds come with 162 free warrants that will later be detached and traded separately.
These are essentially five-year call options that give holders the right to buy Olam shares on a one-for-one basis by paying US$1.291 per warrant from the end of the third year onwards.
Shareholders who do not wish to buy the bond from Olam (ie take up their rights) can sell them in the week-long period the NPRs trade.