The offer by Temasek Holdings Pte’s unit to take over Olam International Ltd. is credit negative for the Singapore state-owned investment company, according to Moody’s Investors Service.
The acquisition, which values one of the world’s top three coffee and rice traders at S$5.3 billion ($4.2 billion), will put pressure on Temasek’s “portfolio liquidity,” Moody’s, which rates the investment firm at Aaa, said in a March 17 report. Olam’s 2 percent dividend yield in 2013 is also lower than Temasek’s return of about 3 percent, it said.
“Bringing a new company under the Singapore umbrella negatively pressures portfolio liquidity,” Alan Greene, a senior credit officer at Moody’s, said in the report, which estimates 65 percent of Temasek’s S$215 billion investments are in Singapore dollars.
The bid by Temasek’s unit reflects growing interest in agricultural assets as rising global populations and emerging middle classes boost food demand. Breedens Investments Pte offered S$2.23 cash per share, a 12 percent premium to Olam’s closing price of S$1.995 before the bid was announced on March 14.
Temasek, which owns 24.6 percent of Olam according to Moody’s, is the company’s biggest shareholder. It increased its stake after concerns raised by short-seller Carson Block in November 2012 caused the stock to plummet.
Temasek is the largest investor in four of Singapore’s 10 biggest publicly traded companies, including Singapore Telecommunications Ltd. and DBS Group Holdings Ltd.
“The high concentration of investment in Singapore-listed companies and the large size of each shareholding reduce portfolio liquidity,” Greene said. “This feature is markedly different from the typical, more broadly spread sovereign wealth funds that can adjust their holdings rapidly without moving markets or requiring placements or trade buyers to effect disposals.”