Temasek drags Olam from Muddy Waters to winning US$1b loan

Nineteen banks from around the globe last week lent US$1 billion Olam International Ltd.
Nineteen banks from around the globe last week lent US$1 billion Olam International Ltd.PHOTO: OLAM INTERNATIONAL

SINGAPORE (BLOOMBERG) - Olam International Ltd., the Singapore commodities trader that fended off an attack from US-based short seller Muddy Waters in 2012, is discovering it's good to have friends with deep pockets.

Nineteen banks from around the globe last week lent US$1 billion (S$1.4 billion) to the company, which has been controlled by Singapore state investment fund Temasek Holdings since 2014. Olam's 2020 dollar bonds returned 6.7 per cent in the past year, as those of rival commodities traders slumped. Singapore-listed Noble Group's notes of the same maturity lost 25 per cent and Trafigura Beheer BV's euro-denominated bonds lost 10.8 per cent.

Olam, flush with cash from loans as well as a recent US$1 billion investment by Mitsubishi Corp, plans to take advantage of a commodities rout that it's called a US$2 billion opportunity for acquisitions. Pacific Investment Management Co. said last month the worst of the collapse is probably past, after a 26 per cent tumble in raw-materials prices in the 12 months through September.

"After the Temasek stake acquisition, credit spreads have narrowed and they have found it easier to borrow," said Abhijit Attavar, a Singapore-based analyst at Jefferies Group. "There was a point when management was preserving cash, but now they can again go into acquisitions."

Olam plans to pursue deals of between US$100 million and US$200 million, a shift from its previous strategy of smaller acquisitions around the US$10 million mark, chief executive officer Sunny Verghese said in September.

The food trader's latest deal is even bigger: a US$1.2 billion purchase of Archer Daniels-Midland Co.'s cocoa business in October.

Olam's peer Noble Group has also been a Muddy Waters target, as the short-seller this year joined Iceberg Research in questioning the firm's accounting methods. While that helped Noble's stock sink 58 per cent in 2015, the company's fortunes are also turning after getting fresh funds from lenders. Its shares soared 22 per cent in the last month.

Muddy Waters declined to comment on its trading position in Olam, according to Zach Kouwe, an outside spokesman for the short seller. Muddy Waters said Olam was "likely to fail" in 2012 and called the shares worthless in a September report the following year. Temasek declined to comment.

"The increase in Temasek's stake in Olam and the acquisition of a 20 per cent shareholding by Mitsubishi at a premium have further strengthened our credit profile," said Jayant Parande, the company's group treasurer. "Liquidity in the banking channel remains strong."

Other commodity firms are also having success with banks. Vitol SA, the Swiss unit of the world's biggest independent oil trader, borrowed a record US$8 billion in October from a group of 57 banks. Trafigura won improved terms on US$2.2 billion of loans the same month. Swiss commodity traders Gunvor Group Ltd. and Mercuria Energy Group Ltd. are marketing US$2 billion of credit facilities.

"Banks are far less price sensitive than bond markets," said Clifford Lee, the Singapore-based head of fixed income at DBS Bank Ltd. "A lot of the difficulties some of these companies have faced have nothing to do with credit stress, they are more sentiment-driven."

Wild market swings and plunging prices have prompted some of the industry's largest players to sell assets and preserve cash. Mercuria is in talks to sell a minority stake to China's largest chemical company, people familiar with the matter said last month. Noble was reported as scaling back its metals business, while Glencore Plc is selling an Australian copper mine.

Weakness in emerging-market currencies and the potential for higher interest rates are a boon for Olam, depressing asset valuations as the company deploys its treasure-chest.

"The strategy has gone back to focusing on growth since Temasek came in," said Attavar at Jefferies.