Olam Says in Best Shape Since 2005 IPO Amid Waters Attacks

Olam International Ltd., the commodity trader that short-seller Carson Block said may fail, said it’s in the best financial health since its 2005 initial public offering and is “comfortable” with its debt.

The world’s second-largest rice trader had S$3.42 billion ($2.8 billion) of equity and S$6.99 billion of net debt as of Sept. 30, Singapore-based Olam said yesterday in a filing. It had S$10.71 billion in cash, readily traded assets and undrawn credit lines as of that date, Olam said.

Block first questioned Olam’s accounting methods at a conference in London on Nov. 19, and later likened it to failed energy trader Enron Corp. in a report by his research firm Muddy Waters LLC. Olam, which counts Singapore’s Temasek Holdings Pte as its second-biggest shareholder, refuted Block’s claims and responded with a proposed $1.25 billion bond and warrants offering to address “lingering doubts” about its financial position.

“The company has the strongest balance sheet position including its highest equity base and lowest gearing since its initial public offering in February 2005” as of June 30, 2012, Olam said yesterday. The company “has a solid future on the back of a clear and differentiated strategy, a strong business model, and a proven execution capability,” it said.

Olam extended gains for a second day and closed 3.3 percent higher at S$1.70 in Singapore, the highest price since Nov. 19. Olam, the second-worst performer on the Straits Times index in 2012, lost 27 percent last year.

Legal Action

The company, also one of the six largest cotton traders, has said it faces no risk of insolvency and sued Block and Muddy Waters on Nov. 21 in the Singapore High Court, calling their comments malicious falsehoods. Muddy Waters rated Olam a strong sell in a 133-page report in November, saying it was likely to fail.

“The board is comfortable with the current equity levels and gearing,” Olam said yesterday in the filing.

Olam said Dec. 3 it will offer $750 million in bonds and as much as $500 million in warrants. Temasek, Singapore’s state-owned investment company, said it would back Olam’s bond offering and will buy any rights not taken up by other investors. Kewalram Singapore Ltd., Olam’s biggest shareholder, said Dec. 10 it also supports the company’s bond issue and its business strategy.

The bonds and warrants are expected to be issued on Jan. 29, Olam said yesterday.

No Equity Needed

Olam doesn’t need any further new equity at this stage and does not need to access the debt capital markets until the end of fiscal 2014 should it choose to, it said yesterday.

Houston-based Enron, once the world’s largest energy trader, plunged into bankruptcy in December 2001 following revelations it was using off-balance-sheet vehicles to hide billions of dollars in losses and inflate the stock price. More than 5,000 jobs and $2 billion in employee retirement funds were wiped out by the collapse. Investors sued to recover more than $60 billion in losses.

(Updates with closing share price in fifth paragraph.)
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