Commodity trader Olam International Ltd. has earmarked nearly $2 billion to fund a campaign of acquisitions as it takes advantage of low commodity prices to enter a buyer’s market.

 

Sunny Verghese, Chief Executive Officer of Olam, which is 51% held by Singapore’s state investment company, Temasek Holdings Pte, announced the group’s acquisition plans less than a month after Mitsubishi Crop. agreed to buy a 20% stake in Olam through two separate deals worth $1 billion.

 

The deal with Mitsubishi not only indicates a turn-around for Olam, which was criticized in a report by U.S. short seller Muddy Waters and, subsequently, forced the group to defend itself against claims of questionable accounting, but also indicates that Asian trading houses are confident that macro drivers such as population growth trends and the emergence of a wealthier middle class in the region will support continued demand for high-quality foods.

 

Now, backed by the funding generated from the Mitsubishi deal, and with the corporate crisis in the past, Olam is ready to leverage weakening currencies in emerging markets and potentially higher interest rates to pursue larger acquisitions; asset valuations are depressed and global commodity prices are at their lowest since 2009.

 

Using the cash raised from the Mitsubishi deal, leveraged with approximately S$1.8 billion (US$1.26 billion) in debt, Olam’s available war chest climbs to approximately $2.72 billion, according to Verghese. This amount will enable Olam to move beyond the smaller transactions it pursued in the past and seek out deals in the $100 million to $200 million range.

 

Although not as well-known as the top four ‘ABCD’ commodity traders – Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus, Olam is a top food-commodity trader particularly in nuts, wheat, cocoa, and rice, and claims that one of every eight chocolate bars eaten worldwide is made from cocoa beans it traded.

 

Olam’s announced plans of aggressive acquisition follow a string of such moves by Asian companies as they maneuver to gain a place among the top U.S. and European traders that dominate global markets. In 2013, one of Japan’s top five trading houses, Marubeni, spent $2.7 billion plus debt to acquire Gavilon Holdings, LLC, and with it a presence in North America. Furthermore, last year, China’s largest food company, COFCO Corp., spent $3.5 billion toward becoming a global grain trader with its acquisition of controlling stakes in Noble Group’s grains arm and Nidera BV.