Muddy Waters aims to sow panic: Olam chief

Muddy Waters aims to sow panic: Olam chief

SINGAPORE - The stinging Muddy Waters attack on Olam's accounting methods was designed solely to sow panic among investors and bankers in the hope it would destroy the firm, said chief executive Sunny Verghese on Wednesday.

He also described Muddy Waters founder Carson Block as a bit player in a larger hedge-fund plot to profit from short-selling Olam stock.

His comments came on a day when the firm staged a spirited fightback on two fronts after criticism from the short-seller research firm on Tuesday.

Olam released a 45-page report in the morning that levelled detailed and strongly worded rebuttals of the Muddy Waters dossier. It followed up with a media and analyst briefing in the evening to underpin the points made earlier in the day.

Mr Verghese told the packed briefing that Muddy Waters made its allegations with "the sole motive of panicking our bondholders, panicking our creditors, panicking our shareholders, following a strategy of shouting fire in a crowded room and hoping it will devastate us".

He said Muddy Waters had woven together "isolated facts taken out of context... to create a false fabric of a story".

Mr Verghese slammed Mr Block as having no integrity, claiming he had a minor role in a larger conspiracy to profit from short-selling Olam.

"Muddy Waters and Carson Block are just small parts, he's probably in the front, but behind, there are some very strong hedge funds involved," he told reporters and analysts, adding that he thought Mr Block had already cashed out.

Mr Verghese, looking composed but battle-weary as he fielded questions for nearly two hours, said Olam's investors and bankers still stood by it. Temasek Holdings which owns 16 per cent has "kept the faith", he said.

Olam earlier called a trading halt in the morning, as it released a document that attacked the Muddy Waters allegations made on Tuesday, which included claims that the commodity trader was a "fiscal black hole".

The Muddy Waters report questioned Olam's solvency and accounting practices, alleging that it was burning cash through acquisitions and was set to fail.

Olam defended its capital expenditure and said it had sufficient liquidity.

Its stock price in New York plunged 11 per cent in over-the- counter trading on Tuesday overnight. There was frenzied activity in the counter on Wednesday after it resumed trading at 10.45am, with almost 102 million shares changing hands. The stock plunged to $1.465 at one point, before losing six cents to close at $1.50, the lowest since April 2009.

Analyst Vincent Fernando of brokerage Religare said it would be "very hard" for Olam to completely dispel the concerns raised by Muddy Waters until it shows positive cash flow, but that could take at least a year. He downgraded the stock to a "sell" yesterday.

But CIMB analyst Lee Wen Ching noted yesterday that the Muddy Waters report "creates sensational headlines but the issues brought up are not fresh".

"Olam may be a black box but this is a common characteristic of supply chain managers," she added.

Olam has been in a war of words with Muddy Waters since Mr Block told a hedge fund conference on Monday last week that he was short-selling the stock.

Olam called a seven-hour trading halt the next morning, but not before its share price plunged 21 per cent in New York over-the-counter trading.

Mr Block, who gained fame for his reports that Chinese companies traded in North America engaged in accounting fraud, told Bloomberg yesterday it had become too difficult to short-sell Chinese equities as the Chinese government helped protect them.

Short-sellers borrow shares and sell them in the hope they will fall, so they can buy them back at a cheaper price and profit from the difference.

Mr Verghese said on Wednesday the management noticed a spike in short positions in May and took action in June to buy back stock. The firm has not bought back stock or bonds in response to the Muddy Waters report.

Mr Verghese promised to release a more detailed report addressing other claims in one or two days.

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