Olam picks London, S'pore to list food ingredients arm

Agri-food giant Olam International is seeking an initial public offering (IPO) of its Olam Food Ingredients (OFI) unit on the London Stock Exchange, with a concurrent secondary listing in Singapore.

The IPO is expected to raise £2 billion (S$3.75 billion), Reuters quoted sources familiar with the deal as saying.

Olam has declined to confirm the proceeds.

OFI's listing and concurrent demerger from its parent remain on course for the first half of next year.

The primary listing in Britain will give the food ingredients company access to London's large and diverse investor base, deep and liquid capital markets and strong understanding and research coverage of the food ingredients sector, said Olam co-founder and group chief executive Sunny Verghese.

"The concurrent listing in Singapore will enable shareholders to participate in the prospects for OFI," he added.

"We also want to attract more investors in Asia."

OFI was created in January last year following a reorganisation of Olam into OFI and Olam Global Agri (OGA).

The restructuring enabled Olam to explore various capital-raising options, including potential listings of OFI and OGA.

Olam first announced plans to list OFI by next year in February this year.

OGA, which is a global food, feed and fibre supplier, is still evaluating a potential IPO by the first half of 2023.

$421.5 million (+26.7%)

Revenue

$22.83 billion (+33.7%)

"We are still going through the process of deciding on a suitable listing venue for OGA," Mr Verghese said. "It is possible for OGA to be listed in London and Singapore. The combinations are all open at this point."

Following the exercise, Olam shareholders will receive one share each in OFI and OGA for every share they own in Olam.

OFI supplies raw food ingredients to global food and beverage brands, food manufacturers, retailers and food service outlets, as well as several niche and premium regional players.

It has a presence in the countries where the raw materials for its cocoa, coffee, dairy, nuts and spice ingredients are produced.

Olam yesterday also reported its financial results for the first half of the year, with net profit growing 26.7 per cent to $421.5 million.

Operational profit after tax and minority interests increased 116 per cent to $436.6 million and was the strongest since Olam's inception.

This came as revenue surged 33.7 per cent to $22.83 billion, from $17.08 billion in the previous year, on the back of strong growth from both OGA and OFI.

OGA contributed to 67.8 per cent of total group revenue, with OFI accounting for 29.8 per cent.

First-half revenue for OFI rose 12.6 per cent year on year to $6.8 billion, while earnings before interest and tax (Ebit) advanced 22.9 per cent to $316.3 million over the same period.

OGA's revenue was up 48.2 per cent year on year to $15.5 billion in the first half, while Ebit rose 58.9 per cent to $407.5 million in the same period.

Mr Verghese said Olam was not negatively impacted by Covid-19 as the food commodities business is recession-proof.

"Regardless of the pandemic, people still need to eat," he said.

He added that Olam has an important role "in providing essential food staples, food ingredients, feed and fibre to customers around the world in a safe, responsible and sustainable way".

The company has declared an interim dividend of four cents per share, compared with 3.5 cents in the first half of last year.

Olam shares closed up 2.78 per cent at $1.48 yesterday.

Olam International co-founder Sunny Verghese grew his company from a humble cashew nut trader into a global agricultural business supplying multinationals such as Nestle and Unilever, so the next transformation is hardly going to faze him.

Mr Verghese, also the group's chief executive, is restructuring the company into three distinct businesses as demand increases and prices grow more volatile.

Over the next two years, Olam International shareholders will be able to invest in Olam Food Ingredients (OFI), which will list in London and Singapore next year. OFI supplies raw food ingredients in five key categories: cocoa, coffee, dairy, nuts and spices for which demand is growing fast, Mr Verghese told The Straits Times.

"When OFI is carved out, listed and demerged, it will operate as an independent entity with its own board. The initial public offering (IPO) will help it raise capital to expand in the next few years," he said. The aim is to acquire value-added assets along the supply chain and enable OFI to grow its profit margins to double digits from 8 per cent to 9 per cent now, he added.

Olam International's food, feed and fibre business will also be listed. Mr Verghese is seeking an IPO for Olam Global Agri (OGA) six months after OFI goes public. Once the restructuring exercise is completed by the first half of 2023, Olam International shareholders will receive a share each in OFI and OGA for every share they own.

"OGA is focused on high-growth emerging markets where food staples like wheat, corn, rapeseeds and soya as well as raw materials like animal feed and protein are in demand," Mr Verghese said. The proceeds raised from OGA's listing will be used to acquire strategic assets in multiple markets. "We want the flexibility of not being compelled to source from a fixed or single origin," he added.

Investments will also be made to add value to existing products in areas such as refining, processing, branding and distribution.

Once OFI and OGA are spun off, Olam International will focus on investing in start-ups involved in digital technology and sustainability under its incubation arm, Olam Ventures. It is now incubating six such businesses.

It will raise funds by offloading assets that are no longer essential to its businesses and build up other assets in its portfolio with the aim of selling them later. These include an oil palm plantation and logistics business in Africa.

"We see immense potential in all three businesses. But trying to do it all together is too complex and takes away the focus we need to have to take each business to the next level," Mr Verghese said.