* Investors want Olam to scale back heavy debt-fuelled
* Capex likely to be slashed 72 pct in year to June 2014
* Strategy review was promised 3 months ago to restore
By Anshuman Daga and Umesh Desai
SINGAPORE/HONG KONG April 25 Singapore's Olam
International Ltd, under pressure to retreat from a
debt-fuelled acquisition spree that drew a short-seller's attack
last November, will unveil a strategy review on Thursday that
many investors hope will target less growth and more cash.
Olam, an agricultural commodities company with global
ambitions, was propped up by Singapore state investor Temasek
Holdings after Muddy Waters criticised its business
practices and sparked a tumble in its bond and share prices.
The company has since shown signs of moderating its
free-spending ways, cancelling a $240 million investment in a
Brazilian sugar mill and selling a U.S. almond orchard that it
then leased back, raising $55 million in cash.
Its moves have helped to stabilise its stock and bond
prices, but investors are looking for lasting changes in how the
company does business.
"I believe Olam could scale back the magnitude of its
investment plans, perhaps helping to achieve free cash flow
sooner," said Vincent Fernando, analyst with Religare.
"Such a decision would likely be well-received by debt
The company is expected to slash its capital spending by 72
percent for the year ending in June 2014, to S$393.7 million
($317.18 million) from the current year's estimated S$1.4
billion, according to Thomson Reuters SmartEstimates, which
emphasise recent forecasts by top-rated analysts.
Spending had risen sharply, surging 68 percent to S$1.5
billion in the last financial year, while it has invested in
assets from a Russian dairy farm to a new urea plant in Gabon
while racking up 25 acquisitions since 2010.
"In the past few years, it has made a lot of acquisitions
and I think, so far, we haven't seen very positive results,"
said Daphne Roth, head of Asia equities strategy at ABN Amro
CRISIS OF CONFIDENCE
After last year's crisis of confidence in the markets,
restoring investor trust has become key for the company.
Its fortunes are increasingly linked with Singapore since
Temasek became its top shareholder with a 24 percent stake, up
from 16 percent after it subscribed to a $712.5 million cash
call in January to bolster Olam's finances.
That became necessary when Muddy Waters' charges of suspect
accounting practices and excessive debt, which Olam challenged
with a defamation lawsuit that it later dropped, triggered a
punishing reaction in financial markets.
Olam's shares plunged as much as 22 percent in the weeks
after the allegations, while its five-year bonds due in 2017
dropped as low as about 80 cents compared with
their face value of $1.00.
The shares have bounced back - at their last close of S$1.67
they were down only 4 percent from where they traded before
Muddy Waters' attack, but that compares poorly with a 13 percent
gain in Singapore's benchmark Straits Times Index over
the same period.
The 2017 bonds have also bounced back and are bid at 93.625
cents, after trading in a narrow 91-96 cent range since the
start of the year, but have lagged gains elsewhere in the market
as U.S. and Japanese monetary easing pushed down yields.
For Olam, which tapped the bond markets heavily during a
boom in Asian high-yield bonds to meet its funding needs, this
has meant a rise in funding costs. In January, it sold five-year
bonds at a coupon of 6.75 percent, just four months after it had
sold bonds of a similar maturity at 5.75 percent.
But with help from Temasek, Olam weathered the worst of the
Muddy Waters attack. The company says there has been no impact
on its business relations with lenders, suppliers and customers,
and three months ago it sought to give further reassurances by
promising the strategic review due to be announced later on
For investors, its debt levels remain a key concern.
Olam is the third most leveraged company among 185 food
processors worldwide with a market value of at least $1 billion,
such as Bunge Ltd and Archer-Daniels Midland Co,
based on net debt to EBITDA (earnings before interest, taxes,
depreciation and amortisation), Reuters data shows.
It is also more leveraged than Singaporean competitors Noble
Group Ltd and Wilmar International Ltd.
Olam's net debt to EBITDA of 6.78 compares with 4.87 for Noble,
6.15 for Wilmar, 1.08 for Bunge and 3.13 for Archer-Daniels.
"Any volatility in terms of credit spreads will hit those
that have not delivered the results from their acquisitions,
especially if these are funded very much by debt. I think the
clarity will help to restore investors' sentiment," said ABN