The IPO of Olam Agri Holdings, the agribusiness unit of Olam Group, will provide shareholders with the opportunity to tap onto current favourable agribusiness trends, enhanced global focus on food security as well as the unit’s track record of consistent performance, its co-founder and group CEO Sunny Verghese said in a briefing.
The company had earlier announced that it is seeking a primary listing on the mainboard of the Singapore Exchange (SGX) as early as the first half of 2023. The company is also exploring a concurrent listing on the Saudi Stock Exchange (Tadawul), subject to market conditions. Both markets, interestingly, are two of the better performing ones among their global peers last year.
The listing follows the completion of the transaction with Saudi Agriculture and Livestock Investment Co (Salic) last month, which would provide the company with significant additional partnership synergies, says Verghese.
On March 25, 2022, Olam announced that it has formed a strategic partnership with Salic with the sale of an estimated 35.4% substantial minority stake in Olam Agri for US$1.24 billion ($1.65 billion), valuing the unit at an equity valuation of US$3.5 billion. Salic is a wholly-owned subsidiary of the Public Investment Fund of Saudi Arabia.
If the concurrent listing takes place, the Olam Agri IPO would be the first dual-listing for a company on these two bourses and the first ever listing in Saudi Arabia of a non-Gulf Cooperation Council (GCC) incorporated business.
The concurrent listing’s timeline will depend on regulatory approvals. Given that no foreign company has ever been listed in Saudi Arabia, the regulatory processes may not be able to be completed by the timeframe that Olam has in mind, explains Verghese.
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“Our indication is that there is keenness to see this happen — because if they want a first foreign company listed in Saudi Arabia, I think it is a great way to start with a company that is owned by Temasek, Salic and Mitsubishi Corp,” says Verghese, referring to his largest shareholders. “They would be quite happy to start with a ‘good exemplar’ to then persuade other international companies and global businesses to consider listing in Saudi Arabia,” he adds.
Verghese notes that Tadawul has a market capitalisation of about US$3 trillion. Although oil and gas giant Aramco accounts for US$1.8 trillion of the market capitalisation, the remaining US$1.1 trillion, a substantial pool by any measure. Given that the current valuations in the Saudi market can command relatively higher valuations, the company has decided that the IPO would be more successful if it were to tap both pools of liquidity in Singapore and Saudi, he says.
Acknowledging news reports claiming that the IPO is seeking to raise up to US$1 billion, Verghese says the size is still undetermined — although it would be “meaningful” and “material”.
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Although no final decision has been made on the Olam Agri IPO offer structure, the IPO may involve an offering in Singapore and globally via an issuance of new Olam Agri shares as well as a sale of shares in Olam Agri by the group.
Concurrently, Olam Agri will be demerged from the group, via a distribution in specie of shares in Olam Agri to Olam’s shareholders, at the point of demerger in conjunction with the Olam Agri IPO. Shareholders of the company will not need to make any payment for shares in Olam Agri and will continue to retain their shares in the Olam.
Growing population, urbanisation and changing diet
Olam Agri’s IPO was announced on the back of growing demand for food, feed, and fibre — the three agribusinesses that the company dabbles with — due to the growing population and changing demographics.
In November last year, the global population exceeded 8 billion and is expected to grow to 10 billion by 2050. Coupled with massive urbanisation and per capita income growth, Verghese believes that there is going to be an exponential growth in demand for agro industrial raw materials.
He further points out that growing per capita income translates to an acceleration of a transition in dietary habits, from a carbohydrates and cereal-based diet to a more protein and fats-based diet. This leads to a multiplier impact on the need for raw agricultural materials to feed ruminants and poultry, as meat consumption is expected to grow up to 500 million tonnes in 2050, versus an estimate of 325 million tonnes last year.
Another significant issue seen in the industry is more diversion of food and feed raw materials into biofuel use, which will continue as economies look for energy transition strategies. Verghese also points out the growing scarcity of resources, particularly arable land and water availability amid the need to almost double food production to meet the growing demands in dietary changes.
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Food security concerns are increasingly gaining prominence across the world. As a result of food price inflation, roughly 60 countries have put in place more non-tariff barriers, says Verghese. This includes outright export bans, lifting of import duties as well as other protective measures to achieve food security in terms of nutritional value and food accessibility.
In Saudi Arabia, the mandate of Olam Agri’s strategic investor Salic is to ensure food security for Saudi Arabia, which imports between 70% and 75% of its total food requirements. Verghese believes that via Olam Agri will be able to aid the execution of the food security mandate within and beyond Saudi Arabia to the broader Middle Eastern region.
In terms of Olam Agri’s operating performance, in FY2021, the company generated $31.3 billion in revenue. Ebitda stood at $930 million with a CAGR of 42.5% over the four year period of 2018 to 2021, while ebit stood at $753 million with a four year CAGR of 46.7%. Its ebit to coverage ratio was close to 16%. As at last year, Olam Agri had a presence in over 30 countries, with a workforce of 9,100 employees across more than 50 manufacturing and processing facilities.
Delay in OFI IPO
Olam Agri is one of three of Olam’s operating groups, and follows a transformation reorganisation plan to split the company into three distinct and coherent groups in January 2020. The other two operating groups are its value-added ingredients unit Olam Food Ingredients (OFI) and an umbrella category of “remaining business”.
Olam intended to demerge OFI via an IPO in 2QFY2022, with a primary listing on the London Stock Exchange and a concurrent secondary listing on the SGX. Last year, however, it announced that the listing was postponed, citing less than favourable market conditions. Verghese asserts that the company is ready for the listing, but will do so sequentially after Olam Agri’s IPO.
“We believe that an Olam Agri listing is more imminent and more possible, even under current market conditions. We do not want to do a concurrent listing for Olam Agri and OFI — although they provide different propositions with different equity stories — as we do not want large institutional investors to [make a choice between them]. Instead, we want some clear distance in time between the two,” he explains.
Since OFI’s IPO preparations were done earlier, it has completed the establishment of separate governance with a new board of directors. The board is chaired by Irish businessman Niall FitzGerald, known for his extensive experience in Unilever.
Meanwhile, Olam Agri currently has an “initial board” consisting of six members of shareholder representatives which will end its tenure prior to the IPO. These are the representatives from major shareholders such as Temasek, Salic and Mitsubishi Corp.
Olam has embarked on a search for an IPO-ready board as well as leadership management team which will be announced in due course.