Olam returns to dollar bonds for tap

The Singapore-based commodities trader reopens April 2021 bond amid deluge of dollar bond supply.

Singaporean commodities trader Olam International returned to the international bond market this week, selling a $150 million tap to an outstanding bond that came ahead of a deluge of supply.

The company tapped its outstanding $300 million 4.5% April 2021 on Wednesday, generating around $300 million of orders for the deal.

The deal came after Olam, which counts Singapore sovereign wealth fund Temasek and Japan’s Mitsubishi as its largest shareholders, announced upbeat second-quarter results in August following its acquisitions of food processing businesses in Nigeria and the US.

Olam’s tap only adds to a huge supply of dollar bonds recently.

The total new issuance of G3 bonds in August in the Asia ex-Japan market was $10.9 billion, double the level in the same month in each of the past two years, according to data provider Dealogic.

But some investors worry about how long the good times will last. The surge in new issuance has led to fears the supply of bonds is more than current demand can comfortably handle, despite a scarcity of yield product and high levels of cash on the sidelines, a Singapore-based fund manager told FinanceAsia

"No one can gauge the risk and reward properly in the current market conditions, where liquidity is abundant and investors are hunting for yield," the fund manager said. "What worries me is that share prices and bond yields moved in the same direction."

But that did not appear to have unduly impacted Olam’s deal. The company was willing to go to $200 million for the fund-raising, but investors were told to expect a $150 million tap, said a banker familiar with the deal. The demand for the deal — roughly two times the size of the tap — was about standard for a reopening, said another banker.

It was only Olam’s latest issue in the dollar bond market. The commodity trader captured more than $1.8 billion of orders for its $500 million of dollar denominated perpetual bonds in July, when investor risk appetite was heightened by the negative interest rates in Europe and Japan. 

Initial guidance for the tap was set at the 4.2% area, before narrowing to 4.1%. The final price of the retap offer was set at 101.561% to yield 4.1%, according to a term sheet seen by FinanceAsia.

As a result the company paid a 15bp new-issue premium, when compared with its outstanding bonds, which traded at a cash price of 102.3% to yield 3.95%.

Taking the latest sale into account, the overall size of the bond issue increased to $450 million from $300 million.

The final order book closed at $300 million from 55 accounts. By geography, Asia took 85% and Europe represented 15%. By investor type, private banks accounted for 51%, while fund managers 36% and banks/others 13%.

The joint bookrunners of Olam's tap were BNP ParibasCredit SuisseDBSHSBC and JP Morgan.

Update: This story has been updated to reflect the fact that the demand Olam got for the deal was about average for a tap, according to bankers. The previous version of the story was based on a miscommunication of the target issue size.

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