THE proposed demerger of Olam International Olam Intl: O32 0% is expected to enhance value by streamlining the group' s portfolio and improve its overall financial position, the agri-business giant reiterated as it fielded questions on why the group is spinning off the stronger Olam Food Ingredients (OFI) unit.

 

The subsequent listing of OFI will strengthen the business unit' s balance sheet, allow shareholders to participate in the growth of the OFI business directly and provide direct access to a wider pool of investors, as well as debt and equity capital markets, Olam said in response to questions from shareholders submitted ahead of a scheme meeting and extraordinary meeting to be held on Feb 18.

 

The responses were made public in a bourse filing on Saturday (Feb 12).

 

Olam had earlier announced its decision to rejig its portfolio into 3 distinct business units that would simplify the group' s structure and give it opportunities to unlock long-term value.

 

OFI consists of the company' s cocoa, coffee, edible nuts, spices and dairy businesses. It is on track for a primary listing on the premium segment of the London Stock Exchange, along with a concurrent listing on the Singapore Exchange by the first half of this year.

 

Another unit, Olam Global Agri (OGA), comprises the grains and animal feed, edible oils, rice, cotton and commodity financial services businesses. Olam International' s co-founder Sunny Verghese had previously said the company is seeking an initial public offering (IPO) for OGA 6 months after OFI goes public.

 

Once OFI and OGA are spun off, Olam International will focus on investing in startups involved in digital technology and sustainability.

 

Addressing concerns that the spin-off of a stronger OFI would leave behind a weaker Olam Group, the group maintained that both the OFI and OGA businesses are strong and attractive.

 

" As we do not want to have the challenge overload of managing 2 IPOs at the same time, we therefore want to focus first on the OFI IPO, and then subsequently on the OGA IPO and demerger on a sequential basis," it said.

 

The group is also evaluating the option of introducing strategic minority partners through the sale of a significant minority stake in OGA.

 

Shareholders also noted that Olam' s equity and bond prices reacted negatively to the demerger. Asked how Olam would " give confidence to the market" , the group called against speculating on the price movements of its various securities and maintained that the re-organisation will enhance value for all shareholders.

 

Current Olam International shares will be converted to the same number of the reorganised Olam Group' s shares following the demerger of OFI.

 

The group, by then, will still hold OGA, gestating assets which it plans to partially or fully monetise, the business of incubating new platforms for growth, and the business of offering technology and shared services through Olam Technology and Business Solutions, Olam International said.

 

The allocation of debt facilities between the operating groups is based on their respective capital structure and asset intensity (fixed and working capital), it said, in response to a question on how the group would divide debt, bonds and perps.

 

It added that the group is in the process of obtaining relevant consents for the novation of existing bank facilities to the new operating groups. Relevant consents have been obtained from bondholders and perpetual securities holders, save for the 2023 bonds, which will remain under Olam International.

 

Post demerger, proceeds from the vendor sales would go towards reducing debt for the reorganised Olam Group. The demerger will have no impact on OFI' s capital structure, the group said.

 

Olam' s total debt and net debt at H1 FY2021 stood at S$15 billion and S$11.5 billion, respectively. Some of this debt may be paid down from divestment proceeds, including those expected from the sale of OFI shares in the IPO, and the potential stake sale of OGA, the group said.

 

The group had also announced last Friday that it has entered into definitive agreements to divest its remaining equity stakes in Arise Integrated Industrial Platforms and Arise Infrastructure Services for an aggregate cash consideration of US$189 million. Both entities are part of the Arise group, a pan-African infrastructure and logistics player.

AGRI-BUSINESS giant Olam International' s current company structure is a " bit too complex" for the group to unlock the full potential of its business units, but the group' s reorganisation plans will soon fix this problem, chief executive Sunny Verghese has said.

 

Speaking at a virtual dialogue organised by Sias (Securities Investors Association (Singapore) on Wednesday (Feb 9), he said the trends underpinning the Olam Food Ingredients (OFI) unit are different from the trends underpinning the Olam Global Agri (OGA) unit and the rest of Olam International' s businesses.

 

In his view, each unit comes with a different set of geographies, trends and capabilities that are required in order to " succeed in that business" .

 

The way Olam is structured currently, these units are " co-mingled" with one another, making it difficult for the group to unlock the full potential of these businesses, said Verghese. He was responding to a question by Sias chief executive David Gerald on why there was a need to carve out these units when they were both essentially focused on the soft commodities industry.

 

In January 2020, Olam announced its decision to rejig its bloated portfolio of several agriculture-related businesses into three distinct business units that would simplify the group' s structure and give it opportunities to unlock long-term value.

 

OFI consists of the company' s cocoa, coffee, edible nuts, spices and dairy businesses. OGA comprises the grains and animal feed, edible oils, rice, cotton and commodity financial services businesses.

 

OFI is on track for a primary listing on the premium segment of the London Stock Exchange, along with a concurrent listing on the Singapore Exchange by the first half of this year. However, Verghese warned that any major market disruptions or high volatility levels in stock markets could potentially derail the listing.

 

Once OFI and OGA are spun off, Olam International will focus on investing in start-ups involved in digital technology and sustainability.

 

With the carving-out of these units, Verghese said the group will be able to cater to shareholders with different interests. For instance, OGA will be able to attract investors with an interest in food security or the demands for fibre and food staples.

 

With the reorganisaton, Verghese reckons Olam will have a " new game plan for exploiting these strengths and taking (its) businesses to full potential" . " We believe that the cost of separating and doing all of this will be far outweighed by the incremental value that we can create by bringing about this reorganisation and a sharper focus," he added.

 

Asked why the group picked the London Stock Exchange for OFI' s primary listing, he said the group wanted to " stay available" in both the Singapore and London stock markets. The group decided on London for the market' s investor pool and liquidity, he said.

 

OFI also has many peers in the UK and Europe, and the sector is generally " well understood" there, he noted.

 

Olam is looking to list OFI at a time when capital markets are plagued with fears of interest rate hikes by the US Federal Reserve, as well as high inflation levels.

 

While Verghese acknowledged that interest rates and cost of funds do have an impact on a firm' s valuation, he stressed that the market is already pricing in a certain hike in interest rates.

 

In addition, interest rates will remain low when compared against historical standards Verghese said he is not expecting a " huge impact" from these.

 

OLAM International will be seeking shareholders' approval for the proposed carving out and subsequent listing of its food ingredients arm by way of a scheme of arrangement, the agri-business company announced on Tuesday (Dec 14).

 

The company plans to undertake a series of transactions to reorganise its business portfolio into 3 operating groups for the subsequent listing of its Olam Food Ingredients (OFI) unit to take place.

 

Olam is proposing to interpose 2 recently incorporated companies - Olam Group (OG Group), which is incorporated in Singapore, and its wholly owned subsidiary OFI Group (OFIGL), which is incorporated in the United Kingdom (UK).

 

OFI consists of the company' s cocoa, coffee, edible nuts, spices and dairy businesses. The other unit, Olam Global Agri (OGA), includes Olam' s grains and animal feed, edible oils, rice, cotton and commodity financial services businesses.

 

The final operating group comprises Olam' s packaged foods, infrastructure and logistics, and Olam Palm Gabon as well as the businesses carried out by Olam Ventures Olam Technology and Business Services.

 

Olam is seeking an initial public offering (IPO) for its OFI business on the London Stock Exchange (LSE), with a concurrent secondary listing in Singapore.

 

It has therefore entered into an implementation agreement with OG to implement the proposed restructuring. Under the terms of the agreement, OG will acquire all the existing issued ordinary shares in the capital of the company held by the shareholders.

 

Following the exercise, Olam shareholders will receive a share each in OG for every share they own in Olam as at the scheme record date.

 

While no decision has been made regarding the offer structure, the new issue could result in an aggregate dilution of OG' s interest in OFIGL by 20 per cent or more, said Olam.

 

Olam is also seeking shareholders' approval to undertake a dividend in specie, post-restructuring, of its rights, interests and benefits in and to some or all of the participatory notes it holds to OFIGL. The company has appointed Rothschild & Co Singapore as the financial adviser for the carve out and the OFI IPO.

 

The company and OFIGL are also working with a syndicate of banks in relation to the OFI IPO.

 

Olam International has secured a US$150 million (S$205.4 million) club loan, which could fund the proposed demerger and initial public offering (IPO) of its new operating group Olam Food Ingredients (OFI), which is into natural and sustainable food ingredients and solutions.

 

Announcing this on Tuesday (Dec 7), the Singapore-headquartered food and agri-business company said the facility agreement " allows for the carve-out, separation and proposed demerger and IPO of OFI as per Olam' s reorganisation plan" .

 

Olam had previously announced that OFI, which was created in early 2020, intends to seek a primary listing on the premium segment of the London Stock Exchange and a concurrent secondary listing in Singapore by the first half of 2022.

 

In its latest statement, Olam also said the proceeds from the facility will be used for " general corporate purposes of Olam and its subsidiaries" .

 

The club loan was sealed with DBS and the Singapore branch of the Industrial and Commercial Bank of China (ICBC). It references the USD Secured Overnight Financing Rate, and has a one-year tenor with Olam Treasury as a co-borrower, Olam noted.

 

Group chief financial officer N. Muthukumar said the financing solution would aid Olam in the transition to " alternative risk-free benchmark rates" ahead of the impending discontinuation of the London Interbank Offered Rate, commonly known as Libor.

 

Libor, one of the most significant global benchmarks for calculating interest, is to be phased out by the end of this year.

 

In September 2020, DBS and ICBC Singapore signed the Republic' s first club loan pegged to the Singapore Overnight Rate Average (Sora) with Olam. The $200 million facility was also the first Sora-pegged facility to be coupled with a cross-currency swap.