Olam Group’s current share price does not reflect its intrinsic or fair value, says the company in its response to shareholders’ questions ahead of the company’s extraordinary general meeting (EGM) to be held on July 4. These questions were submitted by shareholders by June 26. Shares in Olam closed at 94.5 cents as at June 27.
According to Olam, the share price discount is likely due to several factors including a conglomerate or multi-business discount and a lack of adequate free float. The latter has also resulted in a lack of analyst coverage and “effective price discovery”.
“By listing ofi as a pure play, standalone entity or attracting new investors in the private market, we believe most of these factors that are currently depressing the share price could be satisfactorily addressed,” says Olam in response to why it is exploring an initial public offering (IPO) for ofi after the company is selling Olam Agri and monetising its remaining assets.
The company adds that it is not feasible to sell all of its business and assets at the same time to the same buyer and has planned to dispose of its assets progressively.
“Therefore, it is important for us to have full flexibility and optionality of pursuing capital raising options (both public and private) for ofi at a timeline of our choosing subject to market conditions to maximise ofi’s value,” reads the statement dated June 29.
Yet, the company was unable to give a concrete date for ofi's planned IPO. Referring to its previous responses to shareholders’ questions on April 20, Olam only explained that the group was expected to invest US$500 million ($637.8 million) of equity into ofi in the next three to four months at the time.
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“One of the objectives of this equity infusion is to provide greater flexibility to pursue various strategic initiatives to unlock the full potential value of ofi for Olam Group shareholders via both private and/or public routes, for example exploring a concurrent listing in Europe and in Singapore at an appropriate time,” said Olam on June 29.
“We have already demonstrated the value of this flexibility in the case of Olam Agri where we successfully concluded the value unlock through the private route when the IPO option was delayed due to regulatory considerations,” it added.
With regard to the IPO, Olam will continue to update its shareholders on the progress of the options being explored.
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Sale of Olam Agri and its proceeds
On the sale of Olam Agri being in US dollars (USD), which has since weakened against the Singapore dollar (SGD) from 1.32 to 1.28, bringing the difference to around $70 million, Olam says it will receive the sale proceeds in USD.
The group also notes that its functional currency is in USD and its base financial statements are also stated in USD.
While the base USD are converted to and reported in SGD for statutory reporting purposes based on the prevailing USD/SGD rates and the depreciation of the USD will result in lower reported SGD values, this will not signify any loss of value, as any USD appreciation in future will automatically result in higher reported SGD values. “There is therefore no need to hedge for this purpose.” The company also has hedges for its material SGD obligations such as the repayment of its perpetual securities due in 2026.
In response to a shareholder’s question of Sunny Verghese and N. Muthukumar’s stakes in Olam Agri after the entity is sold, Olam only replied that both parties’ stakes are not tied to their roles as group CEO and group chief financial officer (CFO) of Olam Agri. Verghese owns a 4.5% stake in Olam while Muthukumar owns 2.2 million shares in the company. Verghese will no longer be the group CEO and executive director but will remain as the group’s non-executive director on Olam’s board. Muthukumar will cease to be its group CFO, adds Olam.
On the appointment of its next group CEO, Olam says its new CEO will be “expected to drive value through responsible divestments of the remaining Olam Group”.
