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 ($1.52 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 $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 $2.20 target. The stock is up 5.7% at $1.665.
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