SINGAPORE commodities firm Olam International on Tuesday launched its defence against allegations over its accounting by short-seller Carson Block, saying on Tuesday it could fund operations for 18 months if it got shut out of debt markets.
On a conference call, company officials also said Olam would consider share buybacks if it felt its share price was at unfairly low levels. Olam handles more than 90% of world trade in peanuts and is one of the top six cotton traders.
Olam slumped the most in six months in Singapore trading after Muddy Waters founder Mr Block questioned its accounting practices in London on Monday.
The company is "heavily" indebted and aggressive in how it reports what the it calls biological gains on investments, Mr Block told the Ira Sohn Investment Conference. Biological assets consist of plantations, crops and livestock, according to Olam’s annual report.
"We’re unable to reconcile its capex (from last year) with announced projects," Mr Block said. He also questioned its goodwill write-downs.
Olam said on Tuesday it would defend the company’s "strong reputation for transparency and good governance against these baseless and unsubstantiated assertions".
The stock dropped 21% in over-the-counter trading in New York on Monday after the report, according to data. Yesterday they traded 9.2% down at S$1.58 in the afternoon Singapore time, after a trading halt was lifted. Its bonds also fell in Asian trade.
Mr Block said he is betting against the stock because Olam, which had a record level of shorts as of November 15, is booking profits on transactions before it is clear how the deals will work out and is "aggressive" in reporting "biological gains". Olam "strongly rejects the assertions made by Carson Block and or Muddy Waters", it said in a statement. The company was not contacted before by Mr Block nor his Muddy Waters research firm, it said earlier.
Mr Block, a 36-year-old lawyer, has successfully bet against Chinese companies that trade in North America after questioning their accounting methods. One target, tree-plantation operator Sino-Forest Corporation, slumped 74% before eventually filing for bankruptcy protection in March.
"Olam has to come out to prove their case and allay the fears raised by Muddy Waters," said Alan Richardson, a Singapore-based fund manager who helps oversee about $82bn for Samsung Asset Management, which does not own Olam shares.
"We will need to see how both sides are able to articulate their arguments."
The company, whose second-biggest shareholder is Singapore’s state-investment company Temasek Holdings according to data, is down 26% this year in Singapore, compared with a 12% gain in the benchmark Straits Times index.
Olam’s ten-year, Singapore dollar-denominated bonds maturing in October 2022 tumbled S$11.60 to S$88, according to prices from HSBC Holdings. The company’s net debt was $5.7bn as of September 30, according to data.
CIMB Group Holdings analyst Lee Wen Ching downgraded Olam from neutral to trading sell on expectations of "selling pressure once trading resumes as fear overrides the group’s long-term growth plans", she said.
"Olam will fail and recoveries for investors will be negligible," Mr Block said. "It’s a leap of faith to think the company is being honest with its valuation gains."