November 28, 2012 / 3:24 AM / 5 years ago

Olam reassures with detailed defence against Muddy Waters

SINGAPORE (Reuters) - Singapore commodities firm Olam International Ltd (OLAM.SI) issued a detailed defence on Wednesday against short-seller Muddy Waters’ attacks on its accounting practices and acquisitions, emphasising it was not at risk of insolvency.

Olam, 16 percent owned by Singapore state investor Temasek Holdings Pte Ltd TEM.UL, said in a 45-page report it has enough liquidity to pursue its current business and future investments.

The rebuttal focused on major issues raised by Muddy Waters in its own lengthy report issued the day before: Olam’s solvency, accounting-related assertions, business model, acquisitions and capital spending.

“We believe that the report’s assertions are motivated to distract and create panic amongst our continuing shareholders, bond holders and creditors,” Olam said in a statement.

Olam shares recovered their footing after a 6 percent tumble early on Wednesday to their lowest in three and half years. During the afternoon they were trading down a more modest 1.6 percent at S$1.535.

“Olam had a point-by-point rebuttal and pointed out quite correctly that there were a few facts that were isolated and taken out of context,” said Eugene Ng, an analyst at UOB Kay Hian.

“But regardless of whether Muddy Waters’ claims are justified, the perception of Olam as a company has been damaged,” he said.

The company’s shares have plunged 27 percent since the start of the year, underperforming the Straits Times Index’s .FTSTI 13.5 percent gain.

Olam is the most heavily borrowed stock of Singapore’s top 30 companies, suggesting strong demand among short sellers, with nearly 75 percent of its shares that can be borrowed out on loan, although that is down from 80 percent earlier this month, according to Markit Securities Finance.


Muddy Waters, which rose to prominence after attacks on North America-listed Chinese companies, made allegations about irregularities and vulnerabilities at Olam last week and released its detailed 133-page report on Tuesday.

The battle between the two firms, which Olam has escalated to a Singapore court, has cast a spotlight on common accounting practices at commodities firms.

Olam said it has planned for an appropriate capital structure and raised the necessary equity and debt to meet its investment plans.

    “We believe that even without raising any further debt we can easily meet our debt repayment obligations and pursue our planned capex (capital expenditure), in addition to meeting the ongoing working capital needs,” it said.

    “We also have the option of phasing out some of our fixed capital investments if the debt markets completely dry up for some reason.”

    Olam said gains generated from accounting for negative goodwill in certain acquisitions, which were highlighted in Muddy Waters’ report, are treated as exceptional and are excluded when reporting core operational profits.

    CIMB analyst Lee Wen Ching said the Muddy Waters report provided sensational headlines but little new information.

    “We think this report exaggerates the negatives, most of which are already known by the market, rather than bringing up new concerns,” she said.

    Olam, started by the Kewalram Chanrai Group in Nigeria, began as a trader of agricultural commodities with interests ranging from cocoa and coffee to nuts and sugar.

    It has been diversifying into new areas in recent years through acquisitions and now owns plantations and processing plants around the world.

    Additional reporting by Saeed Azhar in Singapore and Nishant Kumar in Hong Kong; Editing by John O'Callaghan and Edmund Klamann

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