Olam

Olam: Co aims to raise $740m through share sale. Grp will sell 286.11m new shares in 3 tranches, with Temasek snapping up 1 tranche of at least 94.41m shares, while another tranche of 94.41m shares will be placed to insti investors. Stock sold under 2 tranches are priced at $2.60/share, while 3rd tranche comprises of a preferential share issue which will be sold to existing shareholders at $2.56/share on basis of 1:22 new shares ….

Assuming Temasek takes up 94.41m shares, final tranche of 97.29m shares will be sold to existing shareholders at $2.56, a 9.5% discount to Olam's closing price on Fri. The bulk of proceeds will likely go towards funding the group's acquisitions, with about 30% used for Capex…..

Street is however mix on the sale, UOB note that 'The key point here is that Temasek is one of the main investors and is raising its stake in a significant manner and when Olam previously placed shares to Temasek in May09, Olam had a lot of upside after that, while Kim Eng note that mkt was likely to react negatively to the discount that the shares are being sold at…..

We note that assuming new shares are successfully placed out and based on last closing price, theoretical post placement price could see Olam trade at $2.80, while Temasek would increase its current stakes from 12.95% to 16%. Daiwa maintains Buy, with TP $3.72 TP while Deutsche maintains Buy with TP $3.20. Tip that potential share sale could dilute FY12-13E EPS by 12%, however, if mgt can deploy the capital into value-accretive investments, impact on DCF could be positive.