by DBS Group (5 June)
Olam announced that it is issuing US$300m of convertible bonds, which would increase to US$400m at the company's option. Bearing an annual interest rate of 1%, a yield-to-maturity of 4.5% per annum and with a conversion price of $3.8464 or c. 29% premium to Olam's last closing price, these US$ convertible bonds will mature on 31 July 2013.
Given that the issue was multiple times oversubscribed, we have assumed that Olam will exercise its option to issue up to US$400m in convertible bonds, which represents potential dilution of c. 8.3%.
Whilst we have cut our target price to $3.51 (still based on 30 times FY2009 earnings) to factor in the potential dilution from the issue of these convertible bonds, we would look to raise our target price when Olam announces more value accretive acquisitions and/or as the Group delivers on its earnings growth.
-Research Report by DBS Group (5 June)
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