Olam International Ltd. (OLAM) Chief Executive Officer Sunny Verghese dismissed claims from Muddy Waters LLC of potential insolvency by pointing to the commodity trader’s more than S$10 billion ($8.2 billion) of liquidity.
“This whole bogey of trying to say that we have some kind of liquidity crisis can not be corroborated,” Verghese said today at a Singapore press briefing. “I just can’t understand” how Muddy Waters could suggest the company may fail, he said.
Olam, one of the world’s top three coffee traders, has dropped 14 percent since Muddy Waters founder Carson Block first questioned the company’s finances and accounting practices at a London conference on Nov. 19, wiping S$574 million off its market value through today. The U.S. short seller rated Olam a strong sell in a 133-page report released on its website yesterday in which it likened the trader to Enron Corp.
Muddy Waters values Olam on a “liquidation basis, because our opinion is that it is likely to fail,” it said. 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, the research firm said.
Olam is getting support from shareholders, including Singapore’s Temasek Holdings Pte, as well as customers, Verghese said.
“I am grateful that they have stood by us,” he said of Temasek, owner of a 16 percent stake in Olam, according to data compiled by Bloomberg. “The fact the they have stayed invested and kept the faith is the biggest support I can ask for.”
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 today in an earlier statement. The company 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.
“We’ve reached out to all” our counterparties and customers, Verghese said in an interview after speaking to reporters, adding that none had pared back commitments with the company. “They are showing a lot of support.”
Verghese confirmed a claim from Muddy Waters that Olam had frozen a $200 million sugar-refinery venture in Nigeria that was announced in December 2010. The company is seeking clarity on a new government regulation that may require it to start sugar farming and milling operations as a condition of building a refinery, he said.
“If the government insists that this new structure will prevail and you have to get into farming and milling, then we don’t have the investment appetite to make that enlarged capital commitment,” he said. “In which case we will permanently abandon the project.”
The stalling of the venture may present a “serious problem” for Olam, Muddy Waters said in yesterday’s report.
While Olam has said its capital projects will have “high” returns on investment as they mature, Muddy Waters has found many are performing “very poorly,” Block said yesterday in an interview with Stephanie Ruhle and Tom Keene on Bloomberg Television’s “Market Makers.”
Block said he had “shorted” Olam, seeking to profit by selling borrowed shares now and buying them back later at a lower price.
While Muddy Waters has in the past targeted New Oriental Education & Technology Group Inc., Fushi Copperweld Inc. and Focus Media Holding Ltd., Block said yesterday he’d lost interest in betting against Chinese stocks.
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.
Muddy Waters is 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.”
Olam sued Muddy Waters and Block in the Singapore High Court on Nov. 21, calling Block’s remarks in London malicious falsehoods. The company is seeking unspecified damages, costs and an injunction against republication of the comments.
Muddy Waters was “following a strategy of shouting fire in a crowded room and hoping it will devastate us,” Verghese said today. “But we will stand up to this.”