Bloomberg News

Olam Says Studying All Legal Options as Temasek Keeps Stake

November 29, 2012

Olam International Ltd. (OLAM), the commodity trader that sued Muddy Waters LLC for defamation, said it’s reviewing all legal options, as its second-largest shareholder maintained its stake and two directors bought shares in the company.

“We’re not saying we’ll only sue them in Singapore,” Chief Executive Officer Sunny Verghese said today in an interview on Bloomberg Television’s “On the Move” program. “Our legal team is looking at our full set of options” to get redress for its shareholders, he said.

Singapore state-owned investment company Temasek Holdings Pte said today it had maintained its stake in Olam. And two Olam board directors, Michael Lim and Robert Tomlin, each bought 200,000 shares in the company, according to separate statements to the Singapore stock exchange. Neither owned shares before the purchase, the statement said.

Olam, one of the world’s top three coffee traders, has dropped 10 percent since Muddy Waters founder Carson Block first questioned the company’s finances and accounting practices at a London conference on Nov. 19. Olam sued the research firm and Block on Nov. 21 in the Singapore High Court, calling the comments malicious falsehoods.

“Temasek is a responsible shareholder,” Verghese said. The company, which holds 16 percent of Olam according to data compiled by Bloomberg, “did come and have several discussions with us, trying to ascertain and get to the truth of what is happening,” he said.

Shares advance

Shares of Olam advanced 4 percent to S$1.56 at the close in Singapore. They’ve dropped 27 percent this year, making the stock the second-worst performing member on the benchmark Straits Times index.

Olam’s 5.75 percent bonds due September 2017 were quoted at 84.7 cents on the dollar as of 5:53 p.m. in Singapore, according to Bloomberg prices. The notes, which priced at par in September, were quoted at 97 cents on Nov. 19, Bloomberg prices show.

Muddy Waters rated Olam a strong sell in a 133-page report released on its website two days ago, in which it likened the company to failed energy trader Enron Corp. Houston-based Enron lost $68 billion in market value from its 2000 peak to filing for bankruptcy in 2001.

Block said in a Nov. 28 interview on Bloomberg Television’s “Market Makers” program that he stands by Muddy Waters’ report and is ready to defend himself in court.

“This whole bogey of trying to say that we have some kind of liquidity crisis cannot be corroborated,” Verghese said yesterday at a briefing in Singapore. “I just can’t understand” how Muddy Waters could say the company may fail.

Olam has more than S$10 billion ($8.2 billion) of liquidity and its balance sheet is the “strongest it’s ever been,” Verghese said today. “We have ample liquidity with significant margin of safety given the likely reaction of debt capital markets.”

Getting Support

Olam is getting support from shareholders, as well as customers, Verghese said.

“I am grateful that they have stood by us,” he said of Temasek. “The fact they have stayed invested and kept the faith is the biggest support I can ask for.”

Temasek’s spokesman Stephen Forshaw said in an e-mailed statement earlier today that the state-owned investment company had maintained its stake in Olam. Forshaw wasn’t immediately available to comment further after Verghese’s interview with Bloomberg Television.

The two Olam board members, Lim and Tomlin, bought their shares at S$1.545 and S$1.55 a share, respectively. A call to Olam seeking comment from them wasn’t answered.

Muddy Waters values Olam on a “liquidation basis, because our opinion is that it is likely to fail,” the research firm said in its report. Olam uses non-cash accounting gains to boost earnings, has been “burning cash” and will need to raise or refinance as much as S$4.6 billion of debt over the next year to remain solvent.

Debt Obligations

Olam has the capacity to meet its debt obligations of S$1.5 billion in the next 12 months, in addition to its planned spending, the Singapore-based company said yesterday in a statement. It supplies 21 products from cocoa to rubber, from 65 countries to 12,300 customers. It’s one of the world’s top six cotton traders.

Block said he had “shorted” Olam, seeking to profit by selling borrowed shares now and buying them back later at a lower price. “It is instructive to view Olam through the lens of failed U.S. trader Enron,” Muddy Waters said in its report. “There are a number of material similarities in the way their businesses developed, and their actions.”

Enron Bankruptcy

Enron, once the world’s largest energy trader, plunged into bankruptcy in December 2001 following revelations it was using off-balance-sheet vehicles to hide billions of dollars in losses and inflate its share price. More than 5,000 Enron employees were fired and about $1 billion in retirement money was lost.

Its creditors had received $21.8 billion in cash and stock as of January this year, equivalent to 53 percent of its obligations, according to a report by Enron Creditors Recovery Corp., set up to liquidate the company’s remaining operations and assets.

While Muddy Waters has in the past targeted New Oriental Education & Technology Group Inc., Fushi Copperweld Inc. and Focus Media Holding Ltd., Block said this week he’d lost interest in betting against Chinese stocks.

Sino-Forest

Block, 36, research director of Los Angeles-based Muddy Waters, had successfully bet against Chinese companies that trade in North America after raising doubts about their accounts. One target, tree-plantation operator Sino-Forest Corp., slumped 74 percent before eventually filing for bankruptcy protection in March.

“In my view, Muddy Waters and Carson Block are just small parts of this whole thing,” Verghese said yesterday. “He’s probably the front but behind him there are probably some very strong hedge funds involved.”

Olam is seeking to establish a connection between Muddy Waters and possible backers, he said.

Muddy Waters has yet to make direct contact with Olam, according to Verghese, who said the research firm has had representatives visit its Singapore office in disguise. Offices in Nigeria, Gabon, Ghana and other locations have also been visited, he said.

“Every time taking on a different persona and hiding behind some facade or the other,” he said. “They’ve never had the courage or the decency or the integrity to talk to us, ask us questions.”

Muddy Waters was “following a strategy of shouting fire in a crowded room and hoping it will devastate us,” Verghese said. “But we will stand up to this.”

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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