Commodity trader Olam rejects Muddy Waters accounting claims

PHOTO: Commodity trader Olam rejects Muddy Waters accounting claims

SINGAPORE - Singapore commodities firm Olam International Ltd defended itself against Muddy Waters, saying the short-seller made "baseless and unsubstantiated assertions", after media reports quoted Muddy Waters' founder questioning the company's accounting practices.

Media reports quoted Carson Block as saying he was betting against Olam after questioning its accounting practices. Olam's US shares fell 21 per cent and its Singapore shares were halted from trade.

Singapore state investor Temasek Holdings has a nearly 16 per cent stake in Olam, Thomson Reuters data shows.

"We are dismayed at the nature and lack of substance of these assertions and opinions about Olam's financial position, particularly as we were not contacted in advance by Carson Block or anyone else from Muddy Waters," Olam said in a statement on Tuesday after it halted its shares from trading.

"We await the publication of their detailed report in this regard today before we address issues raised by them in this proposed report. We will defend Olam's strong reputation for transparency and good governance against these baseless and unsubstantiated assertions," Olam said.

No comment was immediately available from Muddy Waters.

Hit by weak commodity prices and a tough trading environment, Olam's shares are one of the worst performers in the Singapore benchmark Straits Times Index so far this year. The stock is down 18 per cent in a broader market up 12 per cent.

Olam managed, however, to report a 26 per cent rise in first-quarter net profit last week, spurring a pickup in its shares. Out of 21 analysts tracking the stock, 15 had "buy" or"strong buy" ratings, five had "hold" recommendations, and one has a "sell" call, Thomson Reuters data shows.

"The allegations are actually nothing really new. The first allegation is that Olam is booking profits on transactions before it's clear how deals will work out over time," said James Koh, an analyst at Maybank Kim Eng.

"In many transactions, commodity traders like Olam would book gains once both buyer and seller ends are signed and price risk is hedged. The main risk here is counterparty risk, if one party reneges before the delivery date is due. That's what happened with cotton."

Negative reports from Muddy Waters have decimated shares of several North American-listed Chinese companies such as Sino-Forest Corp, China Yurun Food Group Ltd and Spreadtrum Communications Inc.

Olam's 5.75 per cent bonds due 2017 were trading 10 points down at 87.5/88.5 on Tuesday.