The recent announcement by Olam that they will be raising debt with warrants of US$1.25 bil is nothing short of shocking. This comes right after the CEO Sunny Verghese saying that they did not need to go back to bond markets for another 6 months or so. The fact that they suddenly turned around makes their credibility questionable.
High Cost of Debt
For each 1000 shares, rights will be issued to buy 313 bonds priced at 95cents on the dollar. These bonds come with a 6.75% coupon making them effectively 8% in yield. This is far higher than any of the bond issues Olam had done in the past few years. It shows a dramatic rise in risk levels.
Warrants Attached Makes the Rights Even Pricier
What’s worse is that the bonds are stapled with 162 free warrants to subscribe to Olam at $1.575 within the next ......