The challenge

Between 2015 and 2016, Olam undertook a series of acquisitions to build up its mid/downstream capabilities, including acquiring ADM’s cocoa business for US$1.2bn, US peanut sheller McCleskey Mills for US$176m, and wheat milling assets in Nigeria for US$275m.

Subsequent to these acquisitions, Olam’s board tasked the company with strengthening its balance sheet by improving its gearing, generating free cash flow and diversifying its sources of debt.

Olam’s global treasury team, made up of three members and supported by eight treasury operations personnel in Singapore, played a crucial role in ensuring that these objectives are met within a short timeframe of two to three years. In 2016, Olam made significant investments in cocoa businesses and multiple mid and downstream assets like processing units in Africa, which increased the company’s fixed and working capital intensity so the overall capital deployment increased.

The solution

Olam undertook multiple coordinated steps to diversify the nature of funding and the investor base. Over the last 18 months, Olam treasury has delivered on this strategic ask from senior management by raising perpetual equity, diversifying into new markets via revolving credit facilities (RCF) in Europe, as well as the Samurai loan market in Japan.

Olam executed private placement bonds/notes transactions with new investors at a significantly lower cost and matching tenors of funding usage to the nature of funding raised, in addition to setting up a dedicated treasury company in Singapore. The company recorded several firsts: Asia’s first sustainability-linked club loan, and the world’s first digital-linked loan.

This challenge compelled Olam to look for reliable options to generate sustainable long-term free cash flows with working capital improvement solutions without leveraging debt. For this initiative, Olam created a capital productivity task force with a joint senior sponsorship of business and treasury teams.

Best practice and innovation

Despite having a lean global treasury team of three members, it maintains a strong banking relationship with a large panel of 40 banks that provide up to US$14bn in credit facilities to Olam Group. It acts as the central funding unit for the company, responsible for financing operations across over 60 countries.

Whenever there is local banking or funding requirement (typically in local currencies) for its subsidiaries, Olam treasury works closely with its relationship banks and local finance teams to structure financing or working capital solutions. It ensures that the credit facilities are structured to fit its local business units’ requirements, as well as being aligned with Olam’s overall strategic objectives.

Between January 2015 and June 2019, the treasury team raised more than US$1bn from 14 separate privately-placed fixed-rate transactions across 17 investors in Singapore, the US, Japan and Australia. More significantly, these transactions were executed at pricing levels that were 100-150bps lower than its existing secondary bond curve, generating significant cost savings for Olam.

Key benefits

• The central treasury IHB approach efficiently consolidates the group’s financing requirements.
• Achieved a strong revenue growth of 50% from around US$15bn to US$32bn.
• Reduced the cash conversion cycle from 150 days to 76 days with actual working capital savings of roughly US$1.5bn.
• Over the past 2.5 years Olam has successfully diversified from relying on traditional Singapore syndications and public bonds to having a diversified base of floating and fixed-rate debt providers.