Olam International Ltd. (OLAM), the commodity trader that Muddy Waters LLC said may fail, slumped to the lowest in three and a half years in Singapore, after Michael Dee, a former senior managing director at Temasek Holdings Pte, called for Olam to sell stock.
Shares in the world’s second-largest rice trader fell as much as 5.9 percent before trading 5 percent lower at S$1.44, set for the lowest close since April 1, 2009, as of 12:15 p.m. local time. Dee said Olam’s Temasek-backed debt and warrant sale announced this week is an expensive way to raise money.
“Olam made a strategic error in saying equity was not needed until 2015. It needs equity now,’” said Dee, who worked at Temasek from 2008 to 2010, in an article published in Singapore’s Business Times newspaper. Dee joined Temasek after serving as the Southeast Asia chief executive officer for Morgan Stanley.
Olam, also one of the three largest coffee traders, announced the sale of as much as $1.25 billion of bonds and warrants to existing shareholders this week. The offer will address “lingering doubts,” according to Olam CEO Sunny Verghese, which was sparked by Muddy Waters claim that the company is at risk of collapse.
“The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn’t need,” said Dee. “Muddy Waters is not the issue here, it is Olam’s strategic and financial decisions that have brought this situation to a head.”
The company will offer $750 million in bonds and as much as $500 million in warrants and Temasek agreed to buy any rights not taken up by other investors, Olam said. Temasek, which holds 16 percent of Olam according to data compiled by Bloomberg, “made its own independent assessment” before deciding to back the sale, it said in a separate statement on Dec. 4.
“It’s definitely expensive debt to raise,” said Vincent Fernando, an analyst at Religare Capital Markets in Singapore. “It sort of highlighted fears that were raised by Muddy Waters in terms of the company needing capital. A few days before it seems like the company indicated it was not needed. I think this is where it has backfired a bit.”
Olam has enough capital for the next 12 to 18 months even if it’s unable to raise money from the capital markets, Anantharaman Shekhar, an executive director at Olam, said Nov. 28.
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