Bloomberg News

Olam’s Dollar Bonds Plunge After Muddy Waters Queries Accounting

November 20, 2012

Olam International Ltd. (OLAM)’s dollar- denominated bonds due 2017 plunged to a record after a short- seller questioned the company’s accounting methods. Allianz SE, Europe’s biggest insurer, and Baidu Inc. are marketing notes in the U.S. currency as debt risk in the Asia-Pacific region falls.

Olam’s $500 million of 5.75 percent securities were trading at 91.5 cents on the dollar as of 3:54 p.m. in Singapore, BNP Paribas SA prices show, after Carson Block’s Muddy Waters LLC said the company will fail. That’s down from 97 cents yesterday and is the least since Olam priced the notes at par in September, data compiled by Bloomberg show.

The commodities trader, part-owned by Singapore’s Temasek Holdings Pte, is the latest company to be targeted by Muddy Waters, after the research firm made headlines in June 2011 when it accused Sino-Forest Corp. of overstating its assets. Sino- Forest has since filed for bankruptcy protection. Olam is making “substantial progress” toward achieving its goal of a $1 billion annual profit after tax by 2016 via acquisitions and organic growth, Chief Executive Officer Sunny Verghese said in an Aug. 28 statement.

Olam’s bonds are trading lower “because of the news from Carson Block,” said Jeffrey Yap, the Hong Kong-based head of Asia fixed-income trading at Mizuho Securities Asia Ltd. “People find it difficult to analyze Olam because its business model is complicated. From a credit perspective, people get jittery once there is headline news as the company has expanded aggressively.”

Olam’s shares slumped the most in six months in Singapore, declining as much as 11.2 percent to S$1.545 ($1.26), after a trading halt was lifted.

Aggressive Reporting

The Singapore-based company is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, Block told the Ira Sohn Investment Conference in London. The company is booking profits on transactions before it’s clear how those deals will work out, Block said.

Olam is “dismayed at the nature and lack of substance” of Block’s comments and wasn’t contacted by him or Muddy Waters, Verghese said in a statement to the Singapore stock exchange today. Sino-Forest has denied Block’s allegations.

The average yield premium on Asian dollar debt rose for 10 consecutive business days to 271.1 basis points on Nov. 19, according to HSBC Holdings Plc indexes. That’s the highest since 271.6 basis points on Oct. 9, the indexes show.

Allianz Notes

Allianz, based in Munich, is talking to investors about pricing its dollar perpetual bonds, which can be bought back by the company after six years, at a yield of about 6 percent, the person said, asking not to be named as the terms aren’t set. Citigroup Inc., Deutsche Bank AG and HSBC are managing the proposed transaction, the person said.

Baidu is offering five-year bonds at about 175 basis points more than similar-maturity Treasuries and 10-year notes at about 200 basis points more than government debt, according to a person with knowledge of the sale.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 121 basis points as of 8:32 a.m. in Hong Kong, Westpac Banking Corp. prices show. The measure is on course for its lowest close since Nov. 8, according to data provider CMA.

The Markit iTraxx Japan index dropped 4.5 to 181 as of 9:19 a.m. in Tokyo, Citigroup prices show. The benchmark is on track for its lowest close in more than two months, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Australian Bonds

The Markit iTraxx Australia index decreased 2 basis points to 143 as of 11:25 a.m. in Sydney, according to Credit Agricole SA. The gauge is set for its lowest close since Nov. 7, or almost two weeks, according to CMA.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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