What Does Olam International’s Latest Debt Issue Say About The Current Share Market?


Olam International Ltd (SGX: O32) announced yesterday that it will be issuing S$400 million worth of fixed rate notes under its US$5 billion Euro Medium Term Note Programme. The notes, which would mature in seven years upon issue, are expected to be issued on 22 July 2014 and would carry an annual interest rate of 4.25%.

According to The Business Times, the note had been oversubscribed by up to four times (to be specific, S$1.7 billion worth of orders were placed for the S$400 million notes). The business publication also noted that the bulk of the notes (some 80%) had been allocated to investors represented by private banks.

Increased retail participation in the debt markets

Earlier in the year, CapitaMall Trust (SGX: C38U) had issued 7-year bonds that were open for subscription by retail investors. The offering was very successful for the trust as it too was oversubscribed.

With private banks generally representing wealthy individuals, the experience of Olam and CapitaMall Trust in their debt-offerings show the keen interest that individual investors have for mid-term bonds that are offered by some of Singapore’s well-known publicly-listed entities.

With capital flowing into the debt markets, are we going to see a depressed share market for the foreseeable future? Currently, Malaysia’s share market benchmark, the Kuala Lumpur Composite Index, is valued at around 17 times trailing earnings. Meanwhile Japan’s counterpart, the Nikkei 225, has a trailing PE (price/earnings) ratio of 20. In comparison, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), continues to trade at a lower valuation compared to most of its Asian peers with a PE ratio of around 14.

Could there actually be higher investor interest in the debt markets here as compared to shares? It is an interesting hypothesis to explore. However, with so many possible reasons to explain a relatively unloved share market, it’s hard to say with confidence that the debt market here will have an impact on the share market.

Foolish Summary 

Although the analysis of the macro situation in the current share market might be interesting, investors should not be too worried about these issues. Instead of focusing on macro challenges where we, or even companies, have little control over, our time might be better spent if we’re using it to look into the business fundamentals of companies we are interested in. As long as those companies have business fundamentals that remain strong, macro challenges will only be short-term concerns for business-focused investors (like me!).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.