Olam's demerger will enhance shareholder value, improve financial position, it tells shareholders
THE proposed demerger of Olam International O32 is expected to enhance value by streamlining the group's portfolio and improve its overall financial position, the agri-business giant reiterated as it fielded questions on why the group is spinning off the stronger Olam Food Ingredients (OFI) unit.
The subsequent listing of OFI will strengthen the business unit's balance sheet, allow shareholders to participate in the growth of the OFI business directly and provide direct access to a wider pool of investors, as well as debt and equity capital markets, Olam said in response to questions from shareholders submitted ahead of a scheme meeting and extraordinary meeting to be held on Feb 18.
The responses were made public in a bourse filing on Saturday (Feb 12).
Olam had earlier announced its decision to rejig its portfolio into 3 distinct business units that would simplify the group's structure and give it opportunities to unlock long-term value.
OFI consists of the company's cocoa, coffee, edible nuts, spices and dairy businesses. It is on track for a primary listing on the premium segment of the London Stock Exchange, along with a concurrent listing on the Singapore Exchange by the first half of this year.
Another unit, Olam Global Agri (OGA), comprises the grains and animal feed, edible oils, rice, cotton and commodity financial services businesses. Olam International's co-founder Sunny Verghese had previously said the company is seeking an initial public offering (IPO) for OGA 6 months after OFI goes public.
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Once OFI and OGA are spun off, Olam International will focus on investing in startups involved in digital technology and sustainability.
Addressing concerns that the spin-off of a stronger OFI would leave behind a weaker Olam Group, the group maintained that both the OFI and OGA businesses are strong and attractive.
"As we do not want to have the challenge overload of managing 2 IPOs at the same time, we therefore want to focus first on the OFI IPO, and then subsequently on the OGA IPO and demerger on a sequential basis," it said.
The group is also evaluating the option of introducing strategic minority partners through the sale of a significant minority stake in OGA.
Shareholders also noted that Olam's equity and bond prices reacted negatively to the demerger. Asked how Olam would "give confidence to the market", the group called against speculating on the price movements of its various securities and maintained that the re-organisation will enhance value for all shareholders.
Current Olam International shares will be converted to the same number of the reorganised Olam Group's shares on the scheme being effective after the scheme is approved. Following OFI's IPO and demerger, Olam Group shareholders will get OFI shares.
The group, by then, will still hold OGA, gestating assets which it plans to partially or fully monetise, the business of incubating new platforms for growth, and the business of offering technology and shared services through Olam Technology and Business Solutions, Olam International said.
The allocation of debt facilities between the operating groups is based on their respective capital structure and asset intensity (fixed and working capital), it said, in response to a question on how the group would divide debt, bonds and perps.
It added that the group is in the process of obtaining relevant consents for the novation of existing bank facilities to the new operating groups. Relevant consents have been obtained from bondholders and perpetual securities holders, save for the 2023 bonds, which will remain under Olam International.
Post demerger, proceeds from the vendor sales would go towards reducing debt for the reorganised Olam Group. The demerger will have no impact on OFI's capital structure, the group said.
Olam's total debt and net debt at H1 FY2021 stood at S$15 billion and S$11.5 billion, respectively. Some of this debt may be paid down from divestment proceeds, including those expected from the sale of OFI shares in the IPO, and the potential stake sale of OGA, the group said.
The group had also announced last Friday that it has entered into definitive agreements to divest its remaining equity stakes in Arise Integrated Industrial Platforms and Arise Infrastructure Services for an aggregate cash consideration of US$189 million. Both entities are part of the Arise group, a pan-African infrastructure and logistics player.
Shares of Olam International ended Friday flat at S$1.79.
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