Martin Lee @ Sg
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Are Olam Bonds Worth Subscribing to?

I read a recent article on the Straits Times that encouraged people to subscribe for the Olam rights issue for Olam bonds with free detachable warrants.

Olam bonds worth subscribing to (Straits Times)

In the article, the journalist inserted a few quotes from former Morgan Stanley investment banker Michael Dee (he was also a senior Managing Director of Temasek Holdings from August 2008 to April 2010) to support his argument.

described the deal as being so sweet, it should be described as the “sale of the century”

The US$750 million debt and warrant package is one sweet deal for Temasek and is not being done for charitable reasons.

The article ended off by saying that shareholders are getting a very good deal and should thank Muddy Water for Olam’s generosity.

Now, if you just read the ST article with the quotes from Michael Dee, you will be painted with a very one-sided view of the Olam rights issue.

Having your own opinion and standing up for it is a good thing.

However, I think it is very bad journalism to selectively extract quotes and do a 180-degree turn of the original intent of someone else’s view to fit your own story.

You can read the full article from Michael Dee here:

10-point plan of tough love for Olam (Business Times)

Can you see the difference?

Michael Dee even suggested to Olam’s management that they should cancel the bond issue and raise equity instead.

But before shareholders get too excited about shiny packages under the tree, they should consider that this is just a left-pocket, right-pocket deal. The shareholders are paying for this lavish set of terms.

Selling 13 per cent debt with at-the-money warrants is a sign of desperation.

  Olam should cancel the egregiously expensive debt issue and execute a meaningful equity rights offering giving the KC Group, Temasek and management the opportunity to take up rights that are unsubscribed, if any.

There is a reason why bonds are priced giving a high yield. It means investors want to be paid more to hold the bonds. This is because they feel that the company is more risky.

The higher the yield, the higher the risk is and the chance of a company defaulting is higher. Make sure you appreciate this fact before buying into bonds from any company. In investing, return of your capital is not guaranteed.

Meanwhile, Hong Kong exchange has ruled that biological gains cannot be used as part of the profit for companies seeking a listing.

Hong Kong rules that a rise in the possible future value of unborn pigs is not a profit (Yahoo News)

SGX is still undecided.

SGX treading cautiously over biological assets (Business Times)

Leave a Comment:

sender says 9 years ago

Dee on Olam: “ of the century”
CIO of GIC on UBS: “… once in a lifetime opportunity”

same stroke… will it yield a different outcome?

Jimmy says 9 years ago

A common problem among many investment articles seems to be the total lack of regard of an investment proposition from a portfolio perspective and a focus only on the merits of the individual deal in question. Such an article from the national papers is even more deplorable considering the fact that from what I read many retirees have substantial retirement savings parked in Olam.

For e.g., purchasing US$750M worth of 13+% yielding bonds might be of “good value” to an investment vehicle with US$192billion in assets and expected strong and stable capital injections from the MOF in the future, but it sure as hell ain’t “good value” for a retired uncle to subscribe $50,000 worth of Olam bonds when he has no employment income and is highly dependent on his $400,000 worth of dividend yielding portfolio for living expenses during retirement.

A columnist who advocates for common citizens to subscribe for junk bonds by using hyperbolic selective quotations from others has questionable journalistic ethics. While I admit there may be profitable opportunities in such complicated high risk transactions, junk bonds are not called junk for no good reason and it is hard to argue that common folks with perhaps basic financial knowledge at best should be dabbling in them.

    Martin Lee says 9 years ago

    Dear Jimmy,

    That portfolio thing is very true.

    That retired uncle can’t afford to take the hit! If it happens, there is no recourse because captor emptor applies…

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