Lessons from the Olam experience

Lessons from the Olam experience

IF there is one lesson to be learnt from the costly and highly public fight between Singapore-listed Olam International and global short selling specialist Muddy Waters, it is the need for commodities players to be much more transparent with the market.

Much ink has been spilt recounting the bruising battle between the company and Muddy Waters, and there is no need to retrace every twist and turn here. Suffice to say that Olam learnt - the hard way, it must be said - that a clearer communication framework with stakeholders is essential for winning the confidence of public capital markets, and the company has now placed that as one of its top priorities in its new strategy.

Besides simplifying the way it presents its quarterly results, Olam has promised to add new performance metrics for investors to track operating cash flow and return on invested capital. It will also release information on which of its investments are performing up to the mark and which are not.

The lesson from Olam's experience is one that would also benefit other commodity firms listed here.

Noble Group and Wilmar International, together with Olam, ranked among the worst-performing members of the benchmark Straits Times Index last year, and continue to languish.

Their share prices are trading at three-year lows despite a bull run in equity markets in the past few months.

While investors here are generally familiar with the sector, the Muddy Waters episode showed that many still may not fully understand the inner workings of commodity houses.

It does not help, too, that the global commodity trading industry has traditionally been an opaque and private one, and the business more opportunistic by nature.

The commodity firms listed here are also admittedly different. Take, for example, the largest ones: Noble has businesses across both hard and soft commodities; Olam is involved in multiple products in the agricommodities complex; while Wilmar has a large manufacturing and processing presence.

But their commonality lies in the complex nature of their operations and the increasingly challenging marketplace.

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