'Big gun' helps Olam deflect new Muddy Waters salvo

PHOTO: 'Big gun' helps Olam deflect new Muddy Waters salvo

SINGAPORE - Farm commodities supplier Olam on Tuesday parried the latest salvo by US-based short seller Muddy Waters after bringing out its "big gun" Temasek Holdings to support a US$1.25 billion (S$1.52 billion) bond and warrant sale.

Olam shares soared as high as 8.6 per cent in intra-day trade at the Singapore Exchange after it announced the rights issue, which is fully backed by its second-biggest shareholder, Singapore's powerful state investment firm Temasek.

The shares eased to close 1.59 per cent higher at S$1.60 apiece, shrugging off Muddy Waters latest statement that the capital-raising exercise validated its claims the company had a high risk of bankruptcy.

Muddy Waters on Tuesday questioned Olam's bond sale, saying it had actually raised the possibility the company "could have been only days away from collapsing".

"Our view remains strong sell," it said in a statement.

"The US$750 million that Olam is raising merely postpones the collapse that we feel is almost inevitable," it said, noting that this was only a portion of the S$4.6 billion it needs to raise in the next 12 months to stay afloat.

"Olam's fundamental problem remains unchanged: the company has borrowed substantial amounts of money to fund capital projects that we believe are incapable of repaying the debt."

Olam's rights issue announced late Monday will comprise US$750 million in bonds, and warrants of up to US$500 million.

"Today it was all about Olam again as it brought out the big gun of Temasek to steady the ship in muddy waters," Weiming Yang, premium client manager at IG Markets Singapore, said in a commentary.

"It was a small wonder Olam didn't ask for another trading halt while CEO Sunny Verghese tied his shoes. Instead the shares traded freely as shareholders digested its latest attempts to quell market fears about its liquidity."

Yang said influential short seller Carson Block, who owns Muddy Waters, faced a "tough" opponent in Temasek, which owns 16 per cent of Olam and which has committed to raise its stake if necessary.

Temasek held a global portfolio worth S$198 billion as of end March, with its investments spanning financial services, telecom, media, technology, transport, consumer, property, energy, resources and life sciences.

Muddy Waters last month raised doubts about Olam's accounting practices, which it claimed masked its debts.

The US firm predicted it would fail like US energy trader Enron whose collapse in 2001 was triggered by US government probes into its accounting standards.

Verghese on Monday insisted Olam is financially sound and the rights issue was meant to show that the company has the confidence of investors, not to raise money as it already has adequate funds.

"We are doing this to demonstrate... that we can access debt and capital markets at these rates today (and) we have a significant shareholder who is willing to backstop us and support us not with words but with action," he said.

Verghese had earlier likened Muddy Waters' allegations to someone shouting fire in a crowded room.

"Mr Verghese: the fire department is now here and is pulling survivors out of the burning building," Muddy Waters retorted Tuesday.

Analysts said the conflict between Olam and Muddy Waters was likely to continue for some time.

Olam last month filed a defamation suit against Muddy Waters in the Singapore High Court, with the US company threatening to counter-sue Verghese for alleging it was a front for hedge funds.