Tuesday, 20 November 2012

Olam's shares suspended after Muddy Water allegations

Muddy Waters has targeted Olam (listed in Singapore) for "short selling". Temasek is a 15% shareholder of Olam, which makes this case even more interesting. At the moment the share is suspended, pending clarifications.

Muddy Waters has had some succes in some cases (Sino Forest comes to mind), but other cases were not clear cut at all (to say the least).

"Buyer beware", but also "Seller beware".

By Jesse Westbrook and Shruti Date Singh

    Nov. 20 (Bloomberg) -- Olam International Ltd., the commodities trader part owned by Singapore’s state-owned investment company, plunged the most in four years after short seller Carson Block said he’s betting against the shares because he questions the company’s accounting methods.

    The supplier of 20 agricultural goods from cocoa to rubber fell 21 percent in over-the-counter trading in New York yesterday, according to data compiled by Bloomberg, after Block said the company is booking profits on transactions before it’s clear how the deals will work out over time. Singapore-based Olam is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, he told the Ira Sohn Investment Conference in London.

    Olam is “dismayed at the nature and lack of substance” of Block’s comments and wasn’t contacted before by him or his Muddy Waters LLC research firm, Chief Executive Officer Sunny Verghese said in an e-mailed statement. He’s waiting for a report from Muddy Waters and “will strongly defend Olam’s excellent reputation for transparency and good governance,” he said.

    Block, 36, has successfully bet against Chinese companies that trade in North America after questioning their accounting methods. One target, tree-plantation operator Sino-Forest Corp., slumped 74 percent before eventually filing for bankruptcy protection in March last year.

                        ‘Leap of Faith’

    Olam will fail and recoveries for investors will be “negligible,” Block said. “It’s a leap of faith to think the company is being honest with its valuation” gains, he said.

    It fell 0.9 percent in Singapore yesterday to S$1.74 before the 29 cent plunge to $1.10 in New York. It has fallen 18 percent in Singapore this year compared with a 12 percent gain in the benchmark Straits Times Index.

    Hong Kong- and Mississauga, Ontario-based Sino-Forest Corp. plunged before being suspended in August last year after a June 2011 report from Muddy Waters accused it of fraud.

    Block took a short position in Sino-Forest by borrowing and selling the stock, aiming to profit by repaying the borrowed shares at a lower price. Sino-Forest filed for bankruptcy protection in March. The Ontario Securities Commission accused several executives including the former CEO Allen Chan of involvement in a “complex fraudulent scheme” to inflate assets and revenue.

                         Block Targets

    Other companies targeted by Muddy Waters include New Oriental Education & Technology Group Inc. Block said last month he’s “more convinced than ever” that the Beijing-based company is misleading investors. In February, Muddy Waters issued its fifth report on Focus Media Holding Ltd., claiming the Chinese advertising company overstated its network.

    “As it pertains to Sino-Forest, he was able to unearth something others weren’t,” said John Goldsmith, deputy head of equities at Montrusco Bolton Investments Inc. in Toronto, who sold his Sino-Forest shares for a loss in June 2011, seven days after Muddy Waters published its report on the company. “He, ultimately, was proven correct. You have to at least listen.”

    Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to secure foreign currency, according to Olam’s website. Today, Olam is the fifth-largest publicly traded global wholesaler of agricultural products ranked by revenue, after Bunge Ltd., Archer-Daniels-Midland Co., Noble Group Ltd. and Glencore International Plc., according to data compiled by Bloomberg.

                       Biological Assets

    The company supplies food to 12,300 customers in 65 countries and employs more than 18,000 people, the website says. Temasek Holdings Pte, Singapore’s state-owned investment company, holds 16 percent of Olam, according to data compiled by Bloomberg.

    The company’s first-quarter net income of S$43.2 million ($35.3 million) included an operation gain of S$10.1 million on account of “fair valuation of biological assets,” Olam said in a Nov. 14 statement. It said then that it started making such valuations in the third quarter of fiscal 2012 and “hence there was no operational gain/loss booked in the corresponding period” a year earlier.

    Overall, Olam said its quarterly profit rose 26 percent while sales gained 45 percent to S$4.69 billion. Net debt was $5.7 billion as of Sept. 30, according to data compiled by Bloomberg.

No comments:

Post a Comment