OLAM International's critics are hard to appease - angry about its vulnerability to short-sellers on the one hand, scathing about its move to defend itself on the other.

Their first complaint is that the agricultural commodities trader runs a fiendishly complicated business with too much debt. That is why short-sellers like independent research outfit Muddy Waters are emboldened to attack it.

Then when the company launched a " shock and awe" approach in the form of a rights issue to fend off the raiders, it was slammed as well.

The complaint this time is that the structure of the offering - a US$750 million (S$916 million) bond-cum-warrants issue - is so complicated that it is impossible to work out what benefits investors will get out of it.

There are also gripes about the way Olam went about the rights issue.

One Reuters writer asked how arm-twisting shareholders into supporting the company is going to dispel the concerns raised by Muddy Waters.

It looked like a short-term fix, he said.

The Financial Times broadened the scope of the criticism: It claimed that since the Olam offering would be fully underwritten by Temasek Holdings, it was Singapore's way of betting that it could shift the debate from Olam's solvency to one of which side has greater firepower - the city-state with an eye to deterring more attacks of this kind, or the shorts.

For Olam's suffering shareholders, there is only one overriding concern: Is the rights offer worth taking up?

For every 1,000 shares, Olam is offering shareholders 313 bonds priced at 95 per cent of par with a coupon rate of 6.75 per cent that comes with 162 detachable " free" warrants.

To make sure that everyone gets the message loud and clear, Temasek Holdings, which owns about 16 per cent of the company, has undertaken not only to pick up its pro-rata entitlement of the offering, but also to mop up all the rights shares not taken up by existing shareholders.

Muddy Waters founder Carson Block, whose salvos launched the mother of all battles to defend Olam, immediately claimed that this amounted to a sovereign bailout of Olam.

But he failed to highlight that the firm's group managing director Sunny Verghese, who holds 4.7 per cent, intends to exercise his rights entitlements as well.

Now that raises an interesting question: Why should Mr Verghese want to put up US$33 million of his own money into Olam if the company is a sinking ship - destined to fail, as Mr Block puts it?

Former Morgan Stanley investment banker Michael Dee, who has worked out the mathematics behind the offer, described the deal as being so sweet, it should be described as the " sale of the century" .

He said: " The US$750 million debt and warrant package is one sweet deal for Temasek and is not being done for charitable reasons."

The so-called " free" warrants that came with the US$750 million of five-year bonds are hardly free and offer " tremendous value" , as they are long-dated options which give their holders the right to buy Olam's shares at US$1.291 apiece in years four and five of their issue.

Mr Dee said that Black-Scholes model - a complicated mathematics formula developed by economists to value complicated derivatives such as warrants - would value these warrants at around 40 Singapore cents, assuming it is business as usual at Olam.

This means that if an investor sells his warrants, the effective cost for his bonds will be cut from 95 US cents to 78 US cents apiece, giving him an effective yield of 13 per cent.

The proposed rights offering had also calmed jittery Olam bond investors, with existing bonds rallying sharply last week after sinking to record lows. It alleviated fears about the company's ability to repay debts maturing next year.

Still, the way the rights issue has been structured suggests that it was hastily put together without considering that retail investors may be reluctant to take it up because they will end up with odd lots that could be difficult to sell.

As the transaction is due to be completed early next year, there is plenty of time for Olam to tweak the numbers to make sure that its rights offering gains popularity and goodwill among investors.

So, rather than getting arm-twisted into supporting Olam, the company's shareholders may actually be getting a sweetheart deal. They should thank Muddy Waters for the company's generosity.

engyeow@sph.com.sg

OLAM International's critics are hard to appease - angry about its vulnerability to short-sellers on the one hand, scathing about its move to defend itself on the other.

Their first complaint is that the agricultural commodities trader runs a fiendishly complicated business with too much debt. That is why short-sellers like independent research outfit Muddy Waters are emboldened to attack it.

Then when the company launched a " shock and awe" approach in the form of a rights issue to fend off the raiders, it was slammed as well.

The complaint this time is that the structure of the offering - a US$750 million (S$916 million) bond-cum-warrants issue - is so complicated that it is impossible to work out what benefits investors will get out of it.

There are also gripes about the way Olam went about the rights issue.

One Reuters writer asked how arm-twisting shareholders into supporting the company is going to dispel the concerns raised by Muddy Waters.

It looked like a short-term fix, he said.

The Financial Times broadened the scope of the criticism: It claimed that since the Olam offering would be fully underwritten by Temasek Holdings, it was Singapore's way of betting that it could shift the debate from Olam's solvency to one of which side has greater firepower - the city-state with an eye to deterring more attacks of this kind, or the shorts.

For Olam's suffering shareholders, there is only one overriding concern: Is the rights offer worth taking up?

For every 1,000 shares, Olam is offering shareholders 313 bonds priced at 95 per cent of par with a coupon rate of 6.75 per cent that comes with 162 detachable " free" warrants.

To make sure that everyone gets the message loud and clear, Temasek Holdings, which owns about 16 per cent of the company, has undertaken not only to pick up its pro-rata entitlement of the offering, but also to mop up all the rights shares not taken up by existing shareholders.

Muddy Waters founder Carson Block, whose salvos launched the mother of all battles to defend Olam, immediately claimed that this amounted to a sovereign bailout of Olam.

But he failed to highlight that the firm's group managing director Sunny Verghese, who holds 4.7 per cent, intends to exercise his rights entitlements as well.

Now that raises an interesting question: Why should Mr Verghese want to put up US$33 million of his own money into Olam if the company is a sinking ship - destined to fail, as Mr Block puts it?

Former Morgan Stanley investment banker Michael Dee, who has worked out the mathematics behind the offer, described the deal as being so sweet, it should be described as the " sale of the century" .

He said: " The US$750 million debt and warrant package is one sweet deal for Temasek and is not being done for charitable reasons."

The so-called " free" warrants that came with the US$750 million of five-year bonds are hardly free and offer " tremendous value" , as they are long-dated options which give their holders the right to buy Olam's shares at US$1.291 apiece in years four and five of their issue.

Mr Dee said that Black-Scholes model - a complicated mathematics formula developed by economists to value complicated derivatives such as warrants - would value these warrants at around 40 Singapore cents, assuming it is business as usual at Olam.

This means that if an investor sells his warrants, the effective cost for his bonds will be cut from 95 US cents to 78 US cents apiece, giving him an effective yield of 13 per cent.

The proposed rights offering had also calmed jittery Olam bond investors, with existing bonds rallying sharply last week after sinking to record lows. It alleviated fears about the company's ability to repay debts maturing next year.

Still, the way the rights issue has been structured suggests that it was hastily put together without considering that retail investors may be reluctant to take it up because they will end up with odd lots that could be difficult to sell.

As the transaction is due to be completed early next year, there is plenty of time for Olam to tweak the numbers to make sure that its rights offering gains popularity and goodwill among investors.

So, rather than getting arm-twisted into supporting Olam, the company's shareholders may actually be getting a sweetheart deal. They should thank Muddy Waters for the company's generosity.

engyeow@sph.com.sg

OLAM International's critics are hard to appease - angry about its vulnerability to short-sellers on the one hand, scathing about its move to defend itself on the other.

Their first complaint is that the agricultural commodities trader runs a fiendishly complicated business with too much debt. That is why short-sellers like independent research outfit Muddy Waters are emboldened to attack it.

Then when the company launched a " shock and awe" approach in the form of a rights issue to fend off the raiders, it was slammed as well.

The complaint this time is that the structure of the offering - a US$750 million (S$916 million) bond-cum-warrants issue - is so complicated that it is impossible to work out what benefits investors will get out of it.

There are also gripes about the way Olam went about the rights issue.

One Reuters writer asked how arm-twisting shareholders into supporting the company is going to dispel the concerns raised by Muddy Waters.

It looked like a short-term fix, he said.

The Financial Times broadened the scope of the criticism: It claimed that since the Olam offering would be fully underwritten by Temasek Holdings, it was Singapore's way of betting that it could shift the debate from Olam's solvency to one of which side has greater firepower - the city-state with an eye to deterring more attacks of this kind, or the shorts.

For Olam's suffering shareholders, there is only one overriding concern: Is the rights offer worth taking up?

For every 1,000 shares, Olam is offering shareholders 313 bonds priced at 95 per cent of par with a coupon rate of 6.75 per cent that comes with 162 detachable " free" warrants.

To make sure that everyone gets the message loud and clear, Temasek Holdings, which owns about 16 per cent of the company, has undertaken not only to pick up its pro-rata entitlement of the offering, but also to mop up all the rights shares not taken up by existing shareholders.

Muddy Waters founder Carson Block, whose salvos launched the mother of all battles to defend Olam, immediately claimed that this amounted to a sovereign bailout of Olam.

But he failed to highlight that the firm's group managing director Sunny Verghese, who holds 4.7 per cent, intends to exercise his rights entitlements as well.

Now that raises an interesting question: Why should Mr Verghese want to put up US$33 million of his own money into Olam if the company is a sinking ship - destined to fail, as Mr Block puts it?

Former Morgan Stanley investment banker Michael Dee, who has worked out the mathematics behind the offer, described the deal as being so sweet, it should be described as the " sale of the century" .

He said: " The US$750 million debt and warrant package is one sweet deal for Temasek and is not being done for charitable reasons."

The so-called " free" warrants that came with the US$750 million of five-year bonds are hardly free and offer " tremendous value" , as they are long-dated options which give their holders the right to buy Olam's shares at US$1.291 apiece in years four and five of their issue.

Mr Dee said that Black-Scholes model - a complicated mathematics formula developed by economists to value complicated derivatives such as warrants - would value these warrants at around 40 Singapore cents, assuming it is business as usual at Olam.

This means that if an investor sells his warrants, the effective cost for his bonds will be cut from 95 US cents to 78 US cents apiece, giving him an effective yield of 13 per cent.

The proposed rights offering had also calmed jittery Olam bond investors, with existing bonds rallying sharply last week after sinking to record lows. It alleviated fears about the company's ability to repay debts maturing next year.

Still, the way the rights issue has been structured suggests that it was hastily put together without considering that retail investors may be reluctant to take it up because they will end up with odd lots that could be difficult to sell.

As the transaction is due to be completed early next year, there is plenty of time for Olam to tweak the numbers to make sure that its rights offering gains popularity and goodwill among investors.

So, rather than getting arm-twisted into supporting Olam, the company's shareholders may actually be getting a sweetheart deal. They should thank Muddy Waters for the company's generosity.

engyeow@sph.com.sg