Olam's biggest shareholder sells 6.4% to set up charity

The Kewalram Chandrai Group raises close to $200 million after pricing the offering at the top.
The controlling shareholder of agricultural products supply chain manager Olam International last night raised S$300 million ($198 million) from a placement of existing shares in the company, which it was able to price at the top of the indicated range.

According to sources, the money will be used to set up a charity.

The Kewalram Chandrai Group, which established Singapore-listed Olam in 1989, offered 100 million shares at a discount of 2% to 6% to ThursdayÆs close of S$3.06, which translated to an actual price range of S$2.88 to S$3 per share. The early indication after the order book closed at about 10pm Hong Kong time was that the deal would price around the mid-point of that range after being close to three times covered.

A few hours later, however, sources say joint bookrunners DBS and UBS had managed to push the price all the way to S$3 for a tight 2% discount. This feat had been possible, they say, as a big chunk of the offer û believed to be more than 50% - went to a few key accounts which had attached no price limits to their orders.

However, other investors werenÆt very price sensitive either and the deal was still 2.5 times covered at the final price. Just over 80 investors came into the book, which aside from some very big orders from long-only funds, also included the ôwhoÆs whoö of the hedge fund world, says one source. Because the company wanted to take this opportunity to diversify its investor base, not too much of the placement went to existing shareholders.

The tight discount may have been somewhat easier to achieve as the share price fell 5% on Wednesday, supposedly because rumours of the placement leaked to the market and prompted various players to position themselves in order to participate. Such buying could probably explain the strong demand early in the book-building, the source notes.

The offer was lunched at around 5pm Hong Kong time and the books were kept open for about five hours in order to show the deal to a few existing shareholders in Asia.

The share price was unchanged yesterday and even with the set-back the previous day, Olam is still up 44% this year, compared with a 14% gain in the Singapore Straits Times index.

The gains have come on the back of a string of earnings boosting acquisitions, including a $77 million purchase of US-based peanut blancher and ingredient processor, Universal Blanchers that was announced over the weekend. And according to various media reports, OlamÆs managing director and chief executive, Sunny Verghese, told reporters and analysts at a briefing earlier this week that he hopes to clinch about 14 more acquisitions over the next six years to accelerate its growth.

Olam is also in the process of taking over Australian cotton supplier, Queensland Cotton Holdings, after launching a general offer which could cost it as much as A$142 million ($118 million). The offer will remain open until May 30.

The latest acquisition prompted JPMorgan to lift its target price for the Olam stock to S$4.20 from S$3.70. The US investment bank said it believes the company will be able to achieve an earnings compounded annual growth rate of 27% over the next three years through organic growth and M&A into new product categories. Such expansion could in fact provide similar earnings growth beyond the three years, it said.

The placement, which accounted for 6.4% of the share capital, will see KewalramÆs stake in the company fall from 33% to just under 27%.

Olam International is an integrated supplier of raw and processed agricultural commodities, including cocoa, coffee, nuts, rice sugar and cotton. It covers the entire supply chain from sourcing and processing, via storage, transport, shipping and distribution to trading and marketing.
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