Investors exchange 77% of Olam's outstanding CBs

Olam International said yesterday that investors holding a combined $136 million worth of the company's convertible bonds have accepted the offer to exchange the existing bonds for a new CB with a smaller principal and a lower conversion premium. This represents 77% of the $176.4 million outstanding in original bonds and means that the company will be able to book a gain of S$45.08 million ($30 million) before expenses.

Other reasons for the J.P. Morgan-led exchange offer included allowing the Singapore-based supply chain manager of agricultural commodities to lower its upfront debt-to-equity ratio and to reduce the likelihood that it will have to buy back the new bonds in the future. Whether the latter will work is a question that won't be answered for some time yet, but with a conversion price of S$1.38, 20% above the share price before the exchange offer was announced and 29.9% above yesterday's close of S$1.27, the new bonds are more likely to convert over the next few years than the existing bonds which had a conversion price of S$3.84 -- or more than 200% above the current market price.

Bondholders who accepted the offer will get new bonds with a principal amount equal to 78% of the original bond, which means Olam will need to issue new bonds with an aggregate principal amount of $106.08 million. In exchange for accepting the lower principal, bondholders will receive a slightly higher coupon of 1.2821%, versus 1% on the original bonds -- which means their annual interest will be exactly the same in absolute terms as if they had held on to the original bonds. However, the yield-to-put will be slightly reduced to 4.3% from 4.5% on the original bonds.