- Several recently published articles in Nigeria have alleged that Olam Nigeria Limited, Olam International, and their nine subsidiaries are involved in fraud. The Group has since officially denied the allegations in the articles about Olam Nigeria and its subsidiaries being involved in the fraud, and refutes all baseless and inflammatory statements made in the articles. The Group has decided to conduct a review of the matter.
- As a result, Olam (SGX:VC2) saw its share price tumble with the release of the news, falling by about 8.6% as of SGX close on 11 September 2023. Olam’s bond offerings saw movements of smaller degree - OLAMSP 4.000% 24Feb2026 Corp (SGD) fell approximately by 1.4% on its ask price, while OLGPSP 5.375% Perpetual Corp (SGD) saw greater volatility on its bid price with a drop of approximately 5.4%.
- Should the allegations prove to be untrue, we continue to stand by our view (Idea of the Week: Olam’s fixed rate bond still attractive after re-organisation). Should the allegations prove to be true, we think the consequences could range from a fine to a suspension of certain business licenses or a combination of both. We think the impact would mostly be on Olam Agri given the exposure of the Nigerian operation. In our view, a fine is more likely as a suspension would have spillover effects on the Nigerian farming sector considering the Group’s economic ties. For similar reasons, we are not expecting a revocation of business licenses.
- Past fines and penalties on the Group have ranged between US$ 3 – 6 million. While fines are likely proportionate to the charge, a fine within this range is unlikely to impair Olam Agri’s financial operations. The former reported revenue and EBITDA of S$ 36.9B and S$ 1.1B in FY22. On a group level, operations in Nigeria make up an estimated 13% of total revenue in FY22. A suspension of business licenses could impact revenue from Nigerian operations but is unlikely to weigh significantly on Olam Group’s bottom line.
- For bondholders of OLGPSP 5.375% Perpetual Corp (SGD), we do not recommend selling the perp. As we highlighted in our previous update, the Group’s credit profile has moderated but remains decent. A fine or penalty of the above magnitude is unlikely to materially affect the credit profile. Additionally, we note that the Group has S$5.8B of liquidity headroom available which can help to buffer against near-term uncertainties in cashflow. That said, it remains to be seen if revenue from the Nigerian operations will be impaired at the moment. A potentially dire impact on revenue may prompt us to revise our stance. Perp holders also have to be cautious that (1) this investigation and review may turn out to be a protracted process, and (2) the perp’s issuer is Olam Group, the parent company, where Olam Agri is an operating group.
- For bondholders of OLAMSP 4.000% 24Feb2026 Corp (SGD), we remain positive and stand by our call. The bond is issued by Olam International Limited, a wholly-owned subsidiary of Olam Food Ingredients, which is a separate operating group from Olam Agri. Additionally, the bond has a shorter time to maturity (2.5 years) and we see lower risk of uncertain cashflows.
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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