Agricultural commodities trader Olam International has secured a $2.2 billion 364-day facility from 12 lenders at competitive rates, underscoring the Temasek halo effect.
Debt-ridden Olam came under attack from short-seller Muddy Waters in 2012 after its founder Carson Block questioned the company's accounting practises and denounced its debt as unsustainable. However, Olam went on to survive the attack once shareholder and Singapore state investment arm Temasek Holdings raised its stake, underlining its support for the company.
Temasek went a step further in March, making an offer for Olam in a deal that valued the company at $4.2 billion. Breedens Investments, a subsidiary of Temasek, offered S$2.23 in cash per share, a 12% premium to Olam’s closing price before the bid was made.
The commodities trader, which employs more than 23,000 people across 65 countries, had been in talks with lenders prior to Temasek's offer but those talks hit a standstill before resuming. Lenders initially expected a borrowing facility of about $1.2 billion to $1.5 billion but in the end the company was able to raise more as more banks, including relationship banks, piled in, one source familiar with the matter said.
ANZ, Commerzbank, HSBC, JP Morgan, Natixis, Royal Bank of Scotland, and Standard Chartered are senior mandated lead arrangers. Barclays, Banco Bilbao Vizcaya Argentaria, Rabobank, DBS and National Australia Bank are mandated lead arrangers for the revolving credit facility.
Temasek is still in the process of buying out Olam's minority shareholders but the company clearly benefited from the Temasek halo effect, judging by the tight pricing achieved.
The pricing for the facility is staggered. According to the source familiar with the matter, all-in pricing is about 1% above Libor for the first six months. It then steps up to about 125bp over Libor for in the subsequent three months and steps up again to about 175bp for the last three months.
Temasek Holdings has a AAA rating while Olam is unrated and, according to a Moody's report in March, has a relatively weak credit profile and gross debts of S$9.1 billion.
The company is expected to refinance its debt at even more competitive terms once Temasek's offer is completed.
"Temasek is still going through an exercise to get the minorities to tender. When its offer is completed, the credit of the borrower will become very different," the source familiar with the matter said. "This facility is to tide them out and to later refinance at very different terms," he said.
In the company's filing, Olam said that the facility will reduce its overall cost of borrowing. "We will continue to actively monitor and optimise our debt portfolio in line with our strategic plan objectives," Olam's executive director of finance and business development, A Shekhar, said.
The proceeds will go towards refinancing existing debt and meeting capital requirements.
Adaro mines lenders
Elsewhere, Indonesian coal company Adaro Indonesia has sent out a request for proposals to lenders for a $1.25 billion seven-year loan to refinance previous loans. The deadline for banks to submit their bids is the second week of June.
Adaro last year tapped the market with a $380 million seven-year loan which paid a margin of Libor plus 240bp and is a frequent visitor to the loan markets.
“It’s a highly regarded, well-banked name,” said one Hong Kong-based syndicated loan banker. “There’s some weakness in the coal sector but it’s a blue chip name and I am sure they will get some competitive proposals.
The company's results were hurt by weak coal prices in 2013, when its net revenue fell 10.7% year-on-year and its adjusted earnings before interest, taxes, depreciation, and amortisation fell by 32% to $648 million, according to a Moody's report in March, which also highlighted the tough trading conditions ahead.
"Looking ahead, we expect market conditions in 2014 to remain challenging as an oversupply of coal in the region will dampen prospect for a meaningful rebound in coal prices," Moody's analyst Brian Grieser, said.
Adaro is owned by five Indonesian families — Edwin Soeryadjaya, Theodore Permadi Rachmat, Garibaldi Thohir, Ir Subianto and Sandiaga S Uno — who collectively own 64.5% of its shares.
The company is one of the world's largest sub-bituminous coal companies and exports 80% of its products to Southeast Asia, the US and Europe. It is wholly owned by Adaro Energy, which is listed on the Indonesia Stock Exchange.
