Olam International has announced a fully underwritten three-for-20 rights issue at an issue price of $1.25 per share, which is expected to raise gross proceeds of $601.7 million.
The company also announced its 1QFY2021 ended March business update, in which it reported a 13.1% y-o-y decline in earnings to $155.6 million.
Olam attributes the lower earnings to the absence of net exceptional gains compared to the previous year. In the 1QFY2020, Olam had recognised gains of $43.2 million from the divestment of its stake in Far East Agri as well as partial stake sales in the ARISE infrastructure and logistics businesses.
Olam's sales volume rose by 2.4% to 8.6 million metric tonnes in the 1QFY2021 with growth coming from operating groups Olam Food Ingredients (OFI) and Olam Global Agri (OGA).
Group revenue increased by 14.5% y-o-y to $8.8 billion on the back of the higher sales volume as well as higher commodity prices and average selling prices.
However, group ebit fell 2.2% to $254.5 million due to higher depreciation and amortisation charges.
As at March 31, Olam had cash and cash equivalents of $3.8 billion, compared to $3.1 billion as of Dec 31, 2020, while net gearing remained at 1.72 times.
Looking ahead, while uncertainties remain due to the ongoing Covid-19 situation, Olam is optimistic about its prospects. "[The] economic outlook and prospects for the group remain positive, with the industry poised for recovery in 2021, aided by growing demand and tight commodity supplies. With 80-85% of the Group’s revenues in the food category, where demand is less sensitive to recession or economic downcycles, the group believes that it will be able to better navigate the market uncertainties in 2021," the company stated in its business update.
The proposed rights issue will be fully sub-underwritten by major shareholder Temasek.
The issue price of $1.25 per share represents a 26.9% discount to the last traded price of $1.71 on June 21, and a 24.2% discount to the theoretical ex-rights price per share of $1.65.
“This rights issue, which is fully sub-underwritten by our major shareholder Temasek, provides shareholders who have supported us all these years an opportunity to further participate in Olam’s Strategic Plan for future growth,” says Olam group CEO and co-founder Sunny Verghese.
“Having completed the recent acquisition of Olde Thompson, a leading US private label spices and seasonings manufacturer, this is a key next step, in line with our re-organisation plan, that will bolster our balance sheet and position us well to unlock long-term value for our stakeholders,” he adds.
The proceeds from the rights issue will largely be used to partially repay the two-year committed loan facility aggregating US$1 billion ($1.34 billion), along with accrued interest. The loan was used to finance the acquisition of OT Holdings Corp (Olde Thompson), which was completed at an enterprise value of US$950 million.
See more: Olam secures US$1 bil loan facility to finance acquisition of spice business
Entitled shareholders who choose not to subscribe to the rights issue can also realise value by selling their “nil-paid” rights in the market. They will also be able to subscribe for excess rights shares in addition to their pro-rata entitlements.
The rights issue does not require shareholders’ approval as it is within the share issue mandate approved by shareholders at the annual general meeting held in April.
BNP Paribas, Credit Suisse (Singapore), DBS Bank and The Hongkong and Shanghai Banking Corporation have been appointed as joint issue managers, and who together with Mizuho Securities (Singapore) are appointed as joint underwriters for the rights issue.
As at 9.13am, shares in Olam are trading flat at $1.71.
