Olam hits out as stock sinks in Muddy Waters
It denies charges, threatens legal action; says US short-seller visited its office incognito
He went on to describe an extraordinarily secretive visit that Mr Block had made to Olam's office on Nov 1 along with representatives of a hedge fund.
"He impersonated somebody else. When we pushed him, he didn't give us a card - he said he didn't carry a card. He said he was an investor of the hedge fund that came to us, and that as an investor he made a practice of knowing what the hedge fund was investing in."
He went on to describe an extraordinarily secretive visit that Mr Block had made to Olam's office on Nov 1 along with representatives of a hedge fund.
"He impersonated somebody else. When we pushed him, he didn't give us a card - he said he didn't carry a card. He said he was an investor of the hedge fund that came to us, and that as an investor he made a practice of knowing what the hedge fund was investing in."
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It denies charges, threatens legal action; says US short-seller visited its office incognito
By Andrea Soh
21 November 2012
On a dramatic day when its finances were labelled a "black hole", commodities supplier Olam International hit back at its accuser yesterday - claiming that he had sneaked into its office incognito and threatening legal action to defend itself.
The fightback came after US short-seller Muddy Waters revealed that it was betting against Olam and a trading halt was put in place between 9am and 3pm. Olam's share price tumbled as much as 11 per cent yesterday, eventually ending 7.5 per cent down, with allegations and counter-allegations still flying around.
Olam, in which Temasek holds a 16 per cent stake, claims that Muddy Waters and a group of hedge funds are encouraging investors to short its stock.
It was Muddy Waters' founder Carson Block, however, who landed the first blow with a stinging reference to Olam.
"This is not a black box; this is a black hole," Mr Block reportedly said on Monday at the Ira Sohn investment conference in London, a charitable event which sees established European hedge funds among its participants.
He criticised Olam's debt levels and accounting practices. "You should assume we are short on securities of Olam," he said.
After news of this emerged, Olam requested a trading halt in anticipation of Muddy Waters' report that was to have been released yesterday morning. The firm, however, resumed trading of its shares when the report did not appear.
In an urgent conference call with media and analysts yesterday, Olam's group managing director and chief executive Sunny Verghese said that Mr Block's statements have "no merit" and are "baseless".
"It's quite apparent that the objective was to create panic among our shareholders . . . We feel that this has been a very concerted and unfair attack on the company and we intend to defend ourselves vigorously," Mr Verghese said.
He went on to describe an extraordinarily secretive visit that Mr Block had made to Olam's office on Nov 1 along with representatives of a hedge fund.
"He impersonated somebody else. When we pushed him, he didn't give us a card - he said he didn't carry a card. He said he was an investor of the hedge fund that came to us, and that as an investor he made a practice of knowing what the hedge fund was investing in."
"This morning when we saw the Muddy Waters website and his picture there, all three of my colleagues who attended that meeting were 100 per cent sure it was Carson Block," he said.
Mr Verghese said that Olam is currently the most shorted stock in Singapore, with most of the short positions having been taken in the past few weeks.
Olam has also observed a group of four or five hedge funds encouraging other investors to short the stock, leading the company to believe that Muddy Waters may be acting in collusion with these hedge funds.
"We see a pattern in the way Muddy Waters, and whoever they're working with, have taken a view on Olam, having built a significant short position and then coming up with this kind of report, and using very aggressive and big statements."
"Shorting a company stock is not illegal, but manipulating the company's share prices in collusion (with others) is clearly illegal . . . Our shareholders have suffered quite significantly on the back of this episode. So we will be very focused in assessing how our shareholders will be compensated if we come to the determination that there was anything illegal here."
Mr Block also questioned how Olam booked profits on some of its acquisitions and valued its plantations, crops and livestock, the Financial Times reported.
The company said that its gearing ratio is not unusual in its industry, and is confident that raising funds will not be an issue.
It currently has $4 billion in unutilised bank lines, "and we can easily access more", Mr Verghese said.
Olam's share price has dropped 24 per cent so far this year, compared with a 12 per cent gain in the Straits Times Index.
This is the second time in two years that concerns have been raised over the firm's accounts.
A CLSA analyst had raised flags on its internal accounting controls in February, leading to a fall of over 10 per cent in the stock in three days. Olam rebutted then that the differences between its audited and unaudited statements stem from presentation differences between the accounts of its various subsidiaries, and their eventual treatment in the group's accounts.
"Why is it happening to us in a matter of two years? Ours is a complex business, it takes some time to understand this business," said Mr Verghese.
The firm is prepared to intervene if its share price continues to fall, he added. It launched a share buyback mandate at its recent AGM. "We are standing by and ready to use those bullets when we feel fit," Mr Verghese said.
Muddy Waters has had previous run-ins with North America-listed Chinese stocks.
Chinese forestry group Sino-Forest Corp filed for bankruptcy protection in March this year, 10 months after Muddy Waters alleged it had inflated its assets and earnings.
However, another company, US-listed Orient Paper, managed to clear its name after a four-month investigation by three independent agencies found no evidence to support Muddy Waters' claims that it had greatly exaggerated its revenue and assets.