SGX’s PR spin on Olam takeover is indefensible

[makapaaa]

[h=2]SGX’s PR spin on Olam takeover is indefensible[/h]

March 19th, 2014 |

Author: Contributions

Christopher Balding


As an academic who only has to deal with an institution that just wishes I
kept my mouth shut more but doesn’t really press the issue (with some very real
exceptions), I have the ability to speak the truth as I see it and not worry
about public relations. In a way I feel bad for public relation guys that have
to spin indefensible positions at the behest of their masters.

Last week after hearing about the impressive run up of Olam prior to the
Temasek buyout, I raised the possibility that the price gains prior to the
buyout raised concerns. Enter the Singapore Stock Exchange, who
released a statement saying that there was no concern about information
leaks because analysts had raised their price target for Olam. This is a weak
response at best because as the Wall Street Journal noted

Even after all those upgrades, the consensus target was only 1.68
Singapore dollars (US$1.33), according to FactSet, just a single Singapore cent
higher than at the start of the year and far below the S$2 the stock hit just
before the deal was announced.
​

Just to be clear, the Singapore Stock Exchange is claiming that an increase
in the consensus estimate to $1.68 explains the one month move from $1.43 to $2.
Interestingly, according to
Thompson/FirstCall, only two brokers changed their hold recommendations to
buy out of a total of 18 with buy/sell recommendations.

Let’s look a little closer at how fast the price moved presented below in
Figure 1 with all data normalized to 100 for ease of comparison and the data
spreadsheet here.

After hitting its recent low on February 4, Olam began an unprecedented and
rapid price increase. During the same time that Noble Group and Wilmar were
enjoying 12 and 14 percent increases, Olam enjoyed a 40% rise. Which if you
believe the Singapore Stock Exchange, was due solely to analysts raising their
consensus estimate to $1.68. Not only is the rapid and large price movement
suspicious, but so is the change in volume presented below in Table 1.

Wilmar and Noble both had month to month changes in their average daily
volume, but nothing that would raise alarms. Olam’s volume, however, was quite
steady until the month before the buyout. During the month preceding
the buyout, average daily volume more than
tripled. During the same period, when Noble and Wilmar
received price upgrades, their volume increased but by significantly less.

It strains all credibility to breaking point to claim that daily volume and
price movements in Olam in the month prior to the Temasek buyout are due solely
to analyst upgrades which priced Olam at 25% less than the buyout
price. If the Singapore Stock Exchange wants to maintain any credibility it will
look into settlement data about who was buying Olam in the month prior to the
buyout.

The Wall Street Journal said it well writing “Nobody said explaining markets
is easy, but this begs another look.”
Indeed.

Christopher
Balding

* The writer is a professor of
business and economics at the HSBC Business School of the Peking University
Graduate School. An expert in sovereign wealth funds, he has published in such
leading journals as the Review of International Economics, the Journal of Public
Economic Theory, and the International Finance Review on such diverse topics as
CDS pricing, the WTO, and the economics of adoption and abortion. His work as
been cited by a variety of media outlets including the Wall Street Journal and
the Financial Times. Prof Balding received his Phd from the University of
California, Irvine and worked in private equity prior to entering academia. The
article first appeared in his blog, www.facebook.com/baldingsworld.

 

[Leongsam]

Tan Wah Piow has turned WHITE!!!!

 

[Papsmearer]

Fucking insider trading and SGX is covering it up. Gay Loong says got no corruption in Singapore woh. Where is CPIB? Sleeping? If oppo members doing the insider trading on Olam, they will run around like chicken with their heads cut off looking for dirt.

 

[eatshitndie]

Fucking insider trading and SGX is covering it up. Gay Loong says got no corruption in Singapore woh. Where is CPIB? Sleeping? If oppo members doing the insider trading on Olam, they will run around like chicken with their heads cut off looking for dirt.

if there's anything to complain about nefarious affairs in sg, it's the sgx. it's the only so called 1st world stock exchange on the planet that is dominated by stocks in the sub-$2 and sub-$1 category, in what i would term the "long tail" of stocks....onesies twosies and penny stocks that are never taken off from the trading list. what kind of scavenger stock exchange is this?!

 

[makapaaa]

[h=2]BT: Olam ‘market murmurs’. What market murmurs?[/h]

March 19th, 2014 |

Author: Editorial

Yesterday (18 Mar), Singapore’s business daily The Business
Times (BT) published an article by financial journalist Andrea Soh [Link].

In it, Andrea claims that there were market rumours that could possibly
account for the surge in Olam International’s (Olam) share price.

At the beginning of the article, she says:

Meanwhile, there were market murmurs that the surge in
Olam’s share price prior to the announcement on Friday could have been partly
due to interest by other firms in acquiring the agri-commodities trader.
[emphasis added]
​

Then she goes off on a tangent, only to return to it at the end of the
article, where she says:

…market talk revealed that there have been at least three
separate parties interested in acquiring Olam during the same period,
potentially pushing up its share price as well.

Sime Darby, one of the largest palm oil producers in the world, is said to be
one of them. Two Japanese trading companies are also said to be interested in
Olam due to its exposure to African markets. [emphasis
added]
​

But she then unwittingly runs her point down by saying:

Analysts had said that they did not expect a competing offer for
Olam, given that the offer involves existing shareholders with a large
stake, and the complex nature of its business. [emphasis
added]
​

She does her cause harm by using the term “murmurs”. Murmurs are words softly
spoken. That means, if there really were “market murmurs”, that most of the
market had not heard them. That in turn negates the possibility of Olam running
up, as it did, on hefty volume.

Sime Darby, really? “Two Japanese trading companies”, seriously?

TR Emeritus (TRE) has investigated Andrea’s claims and come to the conclusion
that they are completely baseless.

In this digital age, one has only to scour the various websites and forums to
know if there are any rumours about anything.

TRE has searched the various websites and forums and not found the slightest
hint of any competing interest in Olam during its price surge in February and
early March 2014 prior to the announcement of Temasek’s takeover bid.

Since Andrea uses the term “market” repeatedly, as in “market murmurs” and
“market talk”, it is good to define what a market is. A market or stock market
is a place (digital in this case) where people offer to buy and sell shares and
their derivatives.

First we look at senior correspondent R Sivanithy, who has been with BT since
the last millennium. He has been with BT so long he is almost a vampire.

Siva wrote a scathing article (15 Mar) that was published the day after
Temasek announced their takeover bid (14 Mar) (‘Why
no SGX query on Olam price surge?‘). Siva did not mince words:

Olam’s outperformance prior to yesterday’s announcement is simply too large
and too noticeable, and has led to too many raised eyebrows to
be simply brushed off as part of a sector trend. [emphasis
added]
​

It does not take a Sherlock Holmes to deduce from Siva’s article that he had
no idea of Temasek’s interest in acquiring Olam, not to speak of any competing
interest by 3 other companies.

Then we look at Mano Sabnani’s Facebook page. Mano is the founder and
chairman of Rafflesia Holdings, a media and financial consultancy company. He is
well known and well respected in financial circles. He too wrote a scathing
article (14 Mar) blasting all the parties involved in this fiasco [Link]:

What is upsetting is that there seems to have been a big leak of
information on this takeover bid. The stock has been steadily rising on
increasing trading volume in the past three to four weeks, taking it from around
$1.50 to almost $2 against the generally weak local market trend.

Many small shareholders have sold their shares too early and are now
crying foul. Question is why Temasek or Olam did not request for a
trading halt much earlier. It is not a good example to set for the market, where
so much stock has been allowed to change hands when a major development is
imminent.

In such a takeover, there will be many people involved in planning it and the
chances of a leak are great. An early suspension in trading of the stock would
have helped to achieve a level playing field.

Instead, the players have allowed some people with advance knowledge to
benefit. They could have bought the stock around $1.50 and now are set to reap a
near 50 per cent gain within a few weeks, given the $2.23 offer on the
plate.

The authorities in charge of regulating the Singapore market should
look into this matter, notwithstanding the big parties involved. If they have
been negligent in maintaining confidentiality of price-sensitive information and
a level playing field, then the appropriate action should be taken against
them.

Further, the SGX should consider whether the large number of investors who
sold their Olam shares too early, in the share price run up of the past month,
should be compensated by those who bought the shares the same month with obvious
inside knowledge of the imminent takeover.[emphasis
added]
​

Finally, we at TRE do watch the stock market very closely. We covered the
Blumont-Asiasons-LionGold penny stock crash the very day that it happened (‘Penny
stock crash devastates Singaporeans‘). We also covered Sky One’s equally
dramatic crash (‘Worried
brokerages restrict trading of penny stocks‘). As can be seen, we are very
much on the ball when it comes to the Singapore stock market. We did not hear of
any such rumours as Andrea claims.

Nevertheless, TRE asked people – fund managers, analysts, remisiers,
investors, traders – if they had heard the rumours about Sime Darby and the 2
mysterious Japanese trading firms. The answer was a unanimous and resounding
NO!

All these people did not hear any rumours of a Temasek-led buyout,
let alone rumours of competing interest in Olam shares from Sime Darby and 2
unnamed Japanese trading companies.

What does all this mean? Very simple. If the market had heard nothing about
interest in Olam from Sime Darby and 2 mysterious Japanese trading companies,
then obviously there was no “market talk” or “market murmurs” or “market”
anything whatsoever.

So where did the rumours come from?

Of course it is possible Andrea made them up. But we prefer to think she is a
woman of journalistic integrity. So we are dismissing out of hand the notion
that she has fabricated them.

In that case, Andrea must have heard from someone. Who could that person or
persons be? That is a good question that the BT editors would do well to ask
her. If not, the authorities should step in and ask her gently how she knew.

BT and the authorities might ask Sime Darby too if it is true they were
recently interested in acquiring Olam and if they bought any Olam shares.

Last but not least, the timing of Andrea’s revelation is interesting. It
comes just after the Singapore Exchange put out a statement (‘SGX issues hasty statement on Olam shares‘) defending itself
from accusations it had neglected to query Olam on its price surge.

Is Andrea wittingly or unwittingly covering up for SGX? What do you think?

 

[makapaaa]

[h=2]Olam – Is it a bailout using public funds?[/h]

March 20th, 2014 |

Author: Contributions





Olam's stock prices from 21 Sep 2012 to 20 Dec
2012

The acquisition of Olam by Temasek is raising eyebrows and frowns
from many quarters. Kenneth Jeyaratnam has commented negatively
on it. Below is Christopher Balding’s article on the buyout of
Olam. Temasek seems to be very bullish in this commodity trading company. It
came out in full support when it was shorted down by Muddy Waters a year ago.
Now it is making an offer with the possibility to buying over the company at a
high price of $2.23 when it could have had the company for a song when it was
under attack. Why? Why buy at such a huge premium and not when it was about 90c?
Another case of buying high? OPM?

Why is Temasek supporting a foreign owned company to want to commit $2b on it
when it could buy it for less than half the present price? Another long term
strategy stuff?

‘Just had to write about this interesting little tidbit I saw today about
Temasek and Olam. According to news reports, Temasek through a subsidiary is
going to buy Olam at a 12% premium to the current share price. This is an
interesting development and to me raises a couple of questions. First, I am
intrigued that Temasek is paying a 12% premium after the stock has already
increased 30% since the first of the year.

This means that Temasek is either paying nearly a 45% premium to what it
could have paid just two months ago and is really slow to spot a value in its
own portfolio or insiders were buying the stock in advance of a buy out offer
they knew was coming. This 30% increase is even more abnormal considering the
Straits Times (Index) is essentially flat for the year. Neither scenario is
particularly attractive.

Second, this seems like a very oddly timed buy out. Prior to the first of the
year, Olam had traded primarily in the $1.50-1.75 SGD range and this follows on
the announcement that profit declined 13%. If Temasek felt this strongly about
Olam and its long term business prospects, it would seem to be a better
proposition to buy at the bottom of the market because you know the business
well and believe the market is undervaluing the business. Not wait until there
is a 30% increase in two months and then offer a 12% premium. The general
philosophy of long term investors is buy low and sell high. I am just a
professor though, so what do I know.’

Christopher Balding
​

Chua Chin Leng aka
redbean

* The writer blogs at mysingaporenews.blogspot.com.

 

[makapaaa]

[h=2]Moody’s: Temasek’s offer for Olam ‘credit negative’[/h]

March 18th, 2014 |

Author: Editorial

One of the world’s biggest rating agencies has criticised Temasek
Holdings’ multi-billion buyout of Olam International (Olam).

Moody’s Investors Service (Moody’s) said the takeover bid for the beleaguered
agricommodities trader is “credit negative” for Temasek.

Temasek subsidiary Breedens Investments is leading a consortium to put up
$2.53 billion to buy the rest of Olam’s shares. The consortium currently owns
52.5% currently. In a filing to the Singapore Exchange (SGX) last week, the
consortium said it intends to pay $2.23 a share, a 12% premium over its last
traded price of S$1.995.

The offer values Olam at $5.3 billion, about 1.3 times book value, higher
than Olam’s peers Noble Group and Wilmar International which are trading at book
value.

Moody’s said:

For Temasek, the investment holding company of the Government of Singapore
(‘Aaa’ stable) and whose portfolio was SGD215 billion as of March 2013, the
transaction’s financial effect is minimal but nevertheless credit negative.

Bringing a new company under the Singapore umbrella negatively pressures
portfolio liquidity. [Ed. "Negatively pressures portfolio
liquidity" means it becomes harder for Temasek to sell the assets in their
portfolio when they want to.] Furthermore, Olam’s dividend yield in 2013 of
2% is well below Temasek’s overall dividend income yield of about 3% in the year
to March 2013.
​

Moody’s also said that in terms of currency, 65% of Temasek’s investments are
already in Singapore dollars.

“The high concentration of investment in Singapore-listed companies and the
large size of each shareholding reduce portfolio liquidity. 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,” Moody’s added.

It is highly unusual for investment companies to seek full control of a
business, it noted.

However, Moody’s did say that Singapore’s standing as a major commodities
trading hub and as a nation that imports all of its energy and nearly all of its
food argues for Temasek’s support of Olam to protect Singapore’s financial
system, and argues for Temasek to acquire it fully to ensure access to global
food supplies.

It also noted that Olam will benefit from the “financing halo effect” of the
Temasek-led buyout, “Olam’s credit profile is relatively weak with gross debt of
SGD9.1 billion and a reported last-12-months EBITDA of SGD1.2 billion as of 31
December 2013. Now with Temasek firmly in the picture, Olam will benefit from
the financing halo effect, although Temasek does not guarantee the debts of its
operating subsidiaries.” [Ed. "Financing halo effect" means
people will likely think Olam has money because Temasek has money.]

Moody’s Investors Service, often referred to as Moody’s, is the bond credit
rating business of Moody’s Corporation. Moody’s provides international financial
research on bonds issued by commercial and government entities. With Standard
& Poor’s and Fitch Group, it is considered one of the Big Three credit
rating agencies in the world.

Public questions surge in Olam’s share price

Prior to the takeover announcement last week, Olam’s share price had run up
considerably since the first week of February 2014, when the stock market
re-opened after a short break for Chinese New Year. From a low of $1.425 (4
Feb), Olam went up almost in a straight line to $2 (12 Mar).

For the 3 months prior to its run, Olam actually saw a deterioration in share
price from $1.58 to $1.42.

On 14 February 2014 last week, Olam released their results for the second
quarter and half year ended 31 December 2013 [Link]
which showed that profit dropped 12.5%. Despite this, Olam’s share prices ran up
all the way till the takeover announcement.

Trading volume jumped along with the jump in share price. For the 3 months
prior to Olam’s price rise, average daily volume was a mere 3 million shares.
When Olam’s price went up, daily volume rose to as high as 18.29 million shares
(11 Mar) and averaged 9 million shares, 3 times the average volume of the
previous 3 months.

Public murmurs about SGX’s failure to investigate Olam’s share price surge
have spurred SGX to issue a hasty defensive statement (‘SGX issues hasty statement on Olam shares‘) in the wee hours of
Sunday (16 Mar).

Prominent opposition politician Kenneth Jeyaretnam, a former hedge fund
manager, is not mincing words (‘I’m happy to help MPs ask Qs about Olam in Parliament‘):

In fact I would go so far as to say that Olam and Temasek might have breached
the Singapore Takeover Code. This mirrors the UK Takeover Code and places very
clear obligations on both the offeror and offeree companies to keep any offer
discussions secret.

In the event of an unusual movement in the share price of the offeree company
or an increase in turnover they are required to make an immediate announcement
as to the possibility of an offer.

The movement in Olam’s share price was clearly unusual and should have led to
an announcement much earlier. The stock exchange also needs to conduct a
convincing investigation of possible insider trading and if evidence is found
prosecute those responsible.

If any MPs, NCMPs or NMPs wish to raise this issue as well as the broader
question as to why Temasek chose to pay so much for Olam, then I am more than
happy to assist them.
​

If SGX is not going to do anything about it beyond issuing a hasty public
statement, what about the Monetary Authority of Singapore?

What does our dear Minister of Finance Tharman have to say?

 

[zeebjii]

if there's anything to complain about nefarious affairs in sg, it's the sgx. it's the only so called 1st world stock exchange on the planet that is dominated by stocks in the sub-$2 and sub-$1 category, in what i would term the "long tail" of stocks....onesies twosies and penny stocks that are never taken off from the trading list. what kind of scavenger stock exchange is this?!

You think too highly of sgx. make that sub-20 cents and sub-10 cents. In fact many stocks are priced less than 1 cent, figures you can't transact with real-world money.

 

[Papsmearer]

if there's anything to complain about nefarious affairs in sg, it's the sgx. it's the only so called 1st world stock exchange on the planet that is dominated by stocks in the sub-$2 and sub-$1 category, in what i would term the "long tail" of stocks....onesies twosies and penny stocks that are never taken off from the trading list. what kind of scavenger stock exchange is this?!

The largest shareholder of this "scavenger stock exchange" you refer to is SEL Holdings, which is owned by Temasek, which owned by the Govt. So, in the end, its still govt. sponsored corruption.

 

[eatshitndie]

You think too highly of sgx. make that sub-20 cents and sub-10 cents. In fact many stocks are priced less than 1 cent, figures you can't transact with real-world money.

that is even more shocking!

 

[eatshitndie]

The largest shareholder of this "scavenger stock exchange" you refer to is SEL Holdings, which is owned by Temasek, which owned by the Govt. So, in the end, its still govt. sponsored corruption.

it's like a house of matchsticks, ready to collapse or ignite. :*:

 

[Mystery]

Round and round in circle........

 

[mojito]

Better to bring it private than to see it go under. Hahaha! Heng I stop shorting this dog. Took losses and moved on like a man unlike Temasick!