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DJ MARKET TALK: Temasek Commitment On Olam Rights A Big Positive-OSK

Temasek's commitment to take up any unsubscribed Olam rights is a big positive, OSK Research says, noting the company's rights issue aims to raise up to US$1.25 billion, helping to extend its debt maturity and liquidity profile. "This move will allay the fears of more investors regarding the risk of insolvency of Olam, particularly with Temasek's commitment to take up 100% of rights not subscribed." It notes Olam said the effective bond cost is 8.08%, or US$61 million p.a., factoring in a 6.75% coupon and initial 5% discount, coming in at 13% of OSK's forecast FY14 interest expense of S$554 million. "Whilst this may be higher than the cost for past debt fund raising, it is lower than if Olam were to raise debt today (post Muddy Waters' report) without such a structure." It adds, while the bond issue won't lower Olam's gearing, it views it positively as it extends debt maturity; while gearing will fall if the warrants are converted, conversion isn't possible for the first three years, it says. It keeps a Buy call with S$2.20 target. The stock is up 5.7% at S$1.665.

DJ MARKET TALK: Olam View Still Muted Despite Confidence Boost - OCBC

Olam's plan to raise funds via a bond and warrant issue is a move to shore up confidence, OCBC says. "In a nutshell, management hopes that the confidence boost will help to dispel any lingering doubts about its viability and solvency, and thus shoring up its bond and share prices." But it keeps its Hold call and S$1.44 fair value unchanged for now. "While we think that there could be some near-term boost to its share price, we note that outlook for the next six months remains quite muted." The stock is last up 5.7% at S$1.665

DJ MARKET TALK: Olam Fund Raising May Erode Holder Confidence-Maybank-KE

Maybank-Kim Eng downgrades Olam (O32.SG) to Sell from Hold after the company announces an up to US$1.25 billion capital raising exercise of bonds and warrants to be fully underwritten by major shareholder Temasek. "This is a very swift and decisive action, which will ease pressure on the company's financial health, following the rising debt yields on the back of Muddy Waters' allegations. However, we think this may come at a price of eroding minority shareholders' confidence in the longer-term," it says, adding "management's earlier stance that it could easily survive 12-18 months even in a credit market seizure may now sound hollow." It notes after Muddy Waters' allegations, Olam's bond yields spiked to 10%-14%, implying a much higher and arguably unsustainable borrowing cost ahead. It believes management is aiming to combat this by relieving pressure to refinance debt within the next 12 months and set 8% as a lower benchmark yield. It adds, the exercise may also hurt short-sellers as script lenders will need to call for borrowed stock to participate in the offering. It cuts its target to S$1.42 from S$1.75 based on 1X P/B. The stock is up 6.0% at S$1.67.