Singaporean company Olam International priced its first bond on the dollar market on Friday with an unrated, $250 million 10-year issue. Being a frequent borrower on the domestic Singapore dollar market, plus an issuer of convertible bonds in the past, the credit story was not a complete unknown to investors.
As a debutant to the dollar market, locking in the 10-year funding at attractive historical yields became the main reason for the borrower to go ahead with the deal despite a fairly flat period for traders last week. Olam, which is a commodity trading and supply-chain management company, “is a name that has access to the Singapore dollar market and loan markets at very attractive spreads”, said one banker, “so the bond markets only made sense if they were going to get longer-term money.”
The bonds were issued with a 7.5% coupon and shall mature on August 12, 2020. They were re-offered at par to yield 7.5%. This is equivalent to a spread of 458.9bp over the 10-year US Treasury yields.
“Olam has a more concentrated business profile and is a debut name in the market hence the premium,” said one source familiar with the deal.
However, Brayan Lai, credit analyst with Credit Agricole CIB, was of the view that 7% to 7.5% with no structural or covenant protection was too aggressive. “In my view, some sort of fixed-charge coverage test should be implemented,” said Lai.
The joint lead managers -- HSBC and JP Morgan -- found it difficult to find a direct comparable given this was a debut and unrated issue. The closest comparable was the new 2020 bonds issued by Noble Group, even though Noble bonds are rated.
Bankers familiar with the deal speculate that if the bonds had been rated they may have received a slightly better reception. However, as one banker said, “it’s a lot of work to do for an opportunistic trade and could have resulted in them missing a window to price.”
The borrower went on the road last Tuesday (August 3) with investor update meetings in Hong Kong and Singapore. Arrangers eventually came out with guidance at 7.5%. The bookbuilding process took more than 36 hours and once the books closed on Friday the arrangers managed to build an order book that was 2.2 times subscribed -- $550 million from 85 accounts.
The bond markets continued on their flat run Monday with the announcement of the non-farm payroll data. The iTraxx index was 7bp wider than where the markets closed on Friday and the Noble 2020 bonds traded down by half a point.
Not surprisingly, the new Olam 2020s closed Monday’s trading session in Asia at 99.25 to 99.625. This slightly softer performance in the secondary market appears to have been a reflection of the overall weaker backdrop during the course of the day, sources said.
Given the unrated nature of the bonds, the issuer relied on its strong brand to market the notes to investors. Hence there was a good pick-up from retail-based investors with private banks receiving 46% of the sale. Fund managers, asset managers and pension funds were collectively sold 33% of the notes. Banks walked away with 19% of the deal and the remaining 2% went to other types of accounts.
In terms of the regional distribution of the Reg-S registered deal of senior unsecured fixed-rate notes, the key buyers were Asian accounts which bought 71% of the bonds, and Europe which took up 21%.
Olam was set up in 1989 as a single-commodity trader and has since expanded into 64 countries across 20 different agricultural and food ingredient commodities. Last year it exercised a $100 million option increase on an existing seven-year convertible bond to $500 million.
