INTERVIEW-UPDATE 1-Olam says has enough cash, won't tap markets soon

Thu Nov 29, 2012 2:17pm GMT

Quotes

   

* Olam doesn't expect to raise debt for at least 5-6 months -CEO

* Muddy Waters finds fault with Olam's acquisition spree

* Olam says will fight to protect reputation (Adds comments from interview, background)

By Anshuman Daga

SINGAPORE, Nov 29 (Reuters) - Singapore commodity trader Olam International Ltd, under attack by short-seller Muddy Waters for its aggressive spending and debt levels, has sufficient cash and does not expect to tap the debt markets for at least five to six months, its chief executive said.

"We are very comfortable with our balance sheet position, in terms of our equity position as well as our debt position," Sunny Verghese told Reuters in an interview on Thursday.

Verghese, who described assertions from Muddy Waters LLC that the company is teetering on the brink of failure as "a bolt from the blue", said Olam's lenders, investors and trading partners were standing by it.

Olam has sued Muddy Waters in a Singapore court and issued a detailed rebuttal saying it was not at risk of insolvency and had enough liquidity to pursue its business and investments.

Singapore state investor Temasek Holdings Pte Ltd, which owns 16 percent of Olam, has said it maintained its position in the company.

Asked when Olam was likely to tap the markets at the earliest, Verghese said: "Definitely not in the next five to six months."

The company has borrowed heavily to fund its expansion from trading into the actual production and processing of agricultural commodities from cotton to coffee to cashew nuts, and the bond markets have grown jittery over its debt, which totalled S$8.4 billion ($6.9 billion) at the end of September.

Olam's most liquid bond, its 5.75 percent bond issued in September and due in 2017, has been hovering near a lifetime low in recent days. It was quoted around 85 cents on the dollar and yielding above 9.5 percent on Thursday.

Muddy Waters said in a 133-page report early this week that Olam's highly levered balance sheet, low operating margins and continued capital expenditures and acquisitions would require it to raise more money and put it in a precarious financial state, but Verghese said his company's liquidity position was solid.

VIGOROUS FIGHT

"We have S$1.38 billion in cash, we have S$5 billion in liquid hedge inventories and readily marketable inventories that can be converted into cash at a moment's notice," the 53-year old Verghese said at Olam's headquarters in Singapore's financial district.

"We have got S$4.33 billion of unutilised credit lines. So, we have got S$10 billion of liquidity. So, the risk of a solvency situation is a far-fetched thing."

The rise in bond yields would boost Olam's borrowing costs from banks, although market participants were not alarmed about its long-term outlook in the wake of Muddy Waters' attacks.

Muddy Waters makes money by betting against the share prices of companies it targets with often devastating research reports and until recently aimed mainly at China-based firms. Some of the reports crushed shares of the targets, although others were able to recover.

"We value Olam on a liquidation basis because our opinion is that it is likely to fail," Muddy Waters said in its report this week, which was quickly followed by Olam's detailed rebuttal.

Olam's shares managed a 4 percent bounce on Thursday from their lowest close in three-and-a-half years the previous day, as the market assessed the efforts to reassure investors. The share price has fallen as much as 16 percent since the battle with Muddy Waters began early last week, wiping away nearly half a billion dollars in market value. On Thursday, Olam's market capitalisation was about $3 billion.

"When a lot of mud like this is thrown, a lot of people will take the view, 'sell first, we'll ask questions later,' which is precisely the impact these aggressive claims were hoping to make," said Verghese, who was mandated by the Kewalram Chanrai Group to start Olam in 1989 to build an agricultural company.

"But if there is an allegation of dishonesty or (lack of) integrity, then we will have to be vigorous about protecting our reputation."

Olam, which competes with larger rival Louis Dreyfus Corp and other commodity companies including Noble Group Ltd and Wilmar International Ltd, has been aggressive in global acquisitions in recent years.

Its expansion drive has included a dairy business in Uruguay, almond plants in Australia and a greenfield urea project in Gabon.

"We've followed a deliberate strategy of doing a lot of small string-of-pearls kind of acquisitions and that is why we do so many acquisitions," Verghese said.

He rejected Muddy Waters' allegations that its overseas projects were falling short, saying that 32 of its 36 acquisitions were performing "at or above investment thesis". ($1 = 1.2233 Singapore dollars) (Additional reporting by Umesh Desai in HONG KONG; Editing by Edmund Klamann)