Olam International Ltd. (OLAM), the commodity trader that Muddy Waters LLC alleges is in danger of default, said banks hired to help sell $1.25 billion in bonds and warrants didn’t raise concerns about its credit position in discussions with shareholder Temasek Holdings Pte.
Credit Suisse Group AG (CSGN), DBS Bank Ltd., HSBC Holdings Plc (HSBA) and JPMorgan Chase & Co (JPM) “confirm that there was no mention of any concern regarding Olam’s credit position in their discussions with Temasek,” which is supporting the bond sale, Singapore-based Olam said in a statement on its website.
Tim Nicholls, HSBC’s Hong Kong-based spokesman, and Marie Cheung, JPMorgan’s Hong Kong-based spokeswoman, declined to comment beyond Olam’s statement. Josephine Lee, Credit Suisse’s spokeswoman, also in Hong Kong, and Karen Ngui, DBS’s Singapore- based spokeswoman, weren’t immediately available to comment.
Olam, the world’s second-largest rice trader, and Carson Block’s Muddy Waters have engaged in a war of words since 36- year-old Block said last month he was selling Olam shares short -- borrowing them to profit by buying them at a lower price later -- because he expected the company to fail due to mounting debts. Olam Chief Executive Officer Sunny Verghese, who sued the research firm and Block on Nov. 21, described the sale as a vote of confidence from Temasek.
The Singapore-based trader rejected a theory by Muddy Waters that the banks may have refused to lend more money to the company if Temasek didn’t provide additional support. Temasek, Olam’s second-largest shareholder, “made its own independent assessment” before deciding to back the sale of bonds and warrants, the company said.
Olam shares dropped 5.3 percent, the most in a week, to close at S$1.515 in Singapore. They have declined 13 percent since Nov. 19, the day Block first made his allegations.
Olam’s $500 million, 5.75 percent notes due September 2017 were quoted at 88.8 cents on the dollar as of 5:37 p.m. in Singapore, up from a record low of 83.2 cents reached Nov. 30, according to Bloomberg prices.
The bonds were quoted at 97 cents on the dollar Nov. 19. Olam’s planned sale of bonds, announced Dec. 3, would be its largest public issue to date, according to data compiled by Bloomberg.
Olam, also one of the three largest coffee traders, said Temasek would buy any bonds or warrants not sold in an offering underwritten by Credit Suisse, DBS Bank, HSBC and JPMorgan. The inclusion of Singapore state-owned investment company Temasek in the sale was “aimed at reducing uncertainty about Olam in both the bond and equity markets,” according to the Dec. 3 statement.
Temasek’s support for the debt offer amounted to a temporary bailout by the Singaporean investment company, Block said yesterday in an interview on CNBC.
“This would be a situation where Temasek had to choose between bad and worse,” Block said, adding Olam probably had six to eight months before failing due to its unsustainable debt position and cash burn.
In a 133-page report last week, Muddy Waters said that Olam was “likely to fail,” citing a number of “accounting gaffes” and would need to raise or refinance as much as S$4.6 billion ($3.78 billion) of debt during the next year to remain solvent.
Block, research director of Los Angeles-based Muddy Waters, has 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 profited from taking a short position in Sino- Forest, based in Hong Kong and Mississauga, Ontario.
Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to obtain foreign currency, according to Olam’s website. Kewalram Singapore Ltd. is Olam’s top shareholder with a 20 percent stake, according to data compiled by Bloomberg.
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