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Temasek May Get Cheaper Financing for Olam, Jefferies Says

Olam International Ltd., controlled by a unit of Temasek Holdings Pte., may be able to cut annual borrowing costs after a change in ownership control, according to Jefferies Group LLC.

Spreads on Olam’s 5.75 percent U.S. dollar-denominated bonds due in 2017 have narrowed 147 basis points since March 14, according to BNP Paribas SA prices. The cost of financing Olam’s about S$7 billion in debt will shrink by about S$100 million ($80 million) a year based on the spread narrowing 140 basis points, Abhijit Attavar, a Singapore-based Jefferies analyst, said in a phone interview.

Breedens Investments Pte, a unit of the city state’s investment firm, and its related parties own or control 80 percent of Singapore-based Olam, they said in a statement May 23 after a takeover offer closed. Breedens on March 14 had offered S$2.23 each for the shares of Olam it didn’t own, valuing one of the world’s top three coffee and rice traders at S$5.3 billion.

“Having Temasek in charge will provide comfort to bankers and creditors,” Attavar said. “They may not immediately refinance all the long-term debt, but still, when that comes due it will probably refinance at much lower rates.”

Shares in Olam fell 0.5 percent to S$2.23 at the close in Singapore. Short interest in Olam’s stock rose to 13.63% of free float on May 22, from a 12 month low of 2.7% earlier this month, according to Markit data.

Some indexes such as the DAXglobal Agribusiness Index and the MSCI Singapore Free Index will need to cut Olam’s weighting in line with a drop in the trader’s free-float, Attavar said. That may cause “technical-related selling” over a week or so as index-tracking funds readjust their portfolios, he said.

Debt Changes

Temasek declined to comment. Hung Hoeng Chow, associate general manager of investor relations at Olam, referred to a May 15 comment by executive director Shekhar Anantharaman in relation to the company’s debt.

“We expect to make some changes” to the debt structure, Shekhar said on a conference call with analysts that day.

The takeover by Breedens is likely to see Olam management focus on longer-term projects, in line with the investment span of a sovereign wealth fund, and as it benefits from greater market confidence being under the Temasek brand and oversight, Attavar said.

The control that Temasek will have over the company should also give greater comfort for minority investors that stay invested in Olam, said Attavar, who had advised shareholders to retain their stock.

While the number of Olam shares available for trade on the Singapore stock exchange each day is likely to drop, the free float should remain “adequate,” Attavar said.

Breedens intends to keep Olam as a listed company, unless the minimum float requirements of 10 percent aren’t met, it said in March.

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