- Back in early September 2023, several Nigerian news outlets reported that Olam Nigeria and Olam International were investigated for their alleged involvement in more than US$50 billion (S$67 billion) foreign exchange fraud. The Group has officially denied the allegations and swiftly set up a review that is conducted by the Audit Committee, assisted by external counsel and auditors.
- Following the accusation, bond prices for OLGPSP 5.375% Perpetual Corp (SGD) and OLAMSP 4.000% 24Feb2026 Corp (SGD) nosedived. However, prices have since stabilised absent further follow-up from Nigerian authorities while news flow regarding Olam’s accusation faded.
- On 19 February 2024, Olam Group Limited (“Olam”) announced that the review by the company’s Audit and Risk Committee, external counsels, and independent external accountants had been completed. The investigation team did not find evidence that Olam Nigeria was involved in the multi-billion-dollar fraud, as reported by the Nigerian media.
- The Group further highlighted that it has “fully cooperated in the fraud enquiry of Nigerian authorities, and no charges have been brought by them against its unit or any of its officers." Moving forward, Olam also stated that it will continue to operate in Nigeria normally and sees it as an integral part of its future strategic plan. The Group also plans to further strengthen its governance and compliance in the nation.
- Prior to this, positive news regarding Olam has also resurfaced in Nigeria (the launching of educational grants and being the recipient for several awards). In particular, Olam Agri’s Country Head in Nigeria, was awarded the Most Admired CEO in the Agriculture sector at the prestigious Nigerian Business Leadership Awards (NBLA) in December last year. While the re-emergence of positive news flow cannot be taken as a definite sign that the allegations are false, it certainly reinforces the probability of them being untrue in our view.
- Overall, the Group’s announcement was good news for bondholders of Olam’s issuances. If the allegations were to be concluded as untrue, we see no material impact on Olam Nigeria’s operation and consequently to the Group’s bottom line and credit profile. Maintaining the view from our previous update, we believe the Group’s credit profile has moderated but remains decent. We expect softer earnings for FY23 as last year’s profit tailwinds have faded while costs have risen. That said, earnings should improve over time given upcoming earnings opportunities across its subsidiaries and favorable demand-supply dynamics supporting agriculture prices.
- We see stronger reasons for bondholders not to sell either the fixed rate or perpetual bond (“perp”) in light of Olam’s announcement backed by our positive view on the Group’s credit profile and financial outlook. Amongst the issuances, we reiterate our preference for the fixed rate over the perpetual bond (“perp”).
- In our view, the fixed rate bond (OLAMSP 4.000% 24Feb2026 Corp) remains more attractively priced as compared to the perp, considering the much shorter years to maturity (2.0 years) of the fixed rate bond which we expect fewer uncertainties in cashflows and business risks like fraud accusations.
- That said, we think the perp (OLGPSP 5.375% Perpetual Corp) offers a relatively higher yield compared to other SGD perps, largely due to the perceived risk arising from the fraud accusation. We note that the perp was issued under Olam Group Limited, the parent company, while the fixed rate bond was issued under Olam International Limited (under the Olam Food Ingredients business). Before the intended IPO of Olam Group’s operating segments, 1) Olam Agri and 2) Olam Food Ingredients (targeted in 2024), we did not see any material difference between the credit profile of Olam Group and Olam International Limited. Upon the IPO of these two segments, we expect Olam Group to see a reduction in cashflow which may result in a potential degradation in Olam Group’s credit profile.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in OLGPSP 5.375% Perpetual Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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