Olam -- sell

OLAM SHARES SUSPENDED IN SINGAPORE PENDING CLARIFICATION

Singapore,  November 20, 2012 – Media reports state that Carson Block from the research firm, Muddy Waters, has made a number of negative statements about OlamInternational Limited (“Olam”) at a conference yesterday afternoon in London (Monday, 19th November). We are dismayed at the nature and lack of substance of these assertions and opinions about Olam’s financial position, particularly as we were not contacted in advance by Carson Block or anyone else from Muddy Waters.

We await the publication of their detailed report in this regard today before we address issues raised by them in this proposed report. We will defend Olam’s strong reputation for transparency and good governance against these baseless and unsubstantiated assertions. We will consider issuing a further statement during the course of the day once they issue their report and we have had a chance to study the same. We have requested for a trading halt on the stock. In the meanwhile, we reserve our rights against these parties.

Dived 13 cents to $1.61. What level would be a good entry point for bargain hunters?

Insights by dydx in Valuebuddies.com

We should bear in mind:
1) Olam's core business is very much just a commodities trader and, by virtue of that and the fact that the company is involved in many commodities, the group is always carrying big, long positions in many commodities and their markets. The fact is that world prices of many commodities have fallen by quite a big margin in the recent months; under such market conditions, many and most trades would be exposed to losses, either realised or on a re-valued basis from negative movement of commodity prices, or from trade counterparties reneging their contracts. The actual and accounting losses will only catch up over time, as market prices and events evolve.
2) Olam is heavily geared to the tune and in excess of SGD9.5b gross, and SGD7.2b nett, as at 30Sep12, against a group equity of SGD3.4b. It is quite fair to say that Olam has been an aggressive borrower in the banking and debt markets for quite many years now.

If big hidden lossess or frauds are later discovered in this over-sized and over-borrowed commodities house, it is possible that the resultant impact could become shattering to Olam's investors and creditors, and may be also to the larger markets.

Taken from  www.muddywatersresearch.com/research/ola...am-frantic-response/


To Olam CEO Sunny Verghese and the Board of Directors:


In the two and one-half years Muddy Waters, LLC has been openly criticizing
publicly-traded companies, we have not seen a response as defensive as
yours – not even from Sino-Forest. On Monday, our Director of Research gave
a brief talk on Olam at a well-respected charity event. He presented facts
about Olam along with Muddy Waters’s opinion that Olam is at risk of
collapsing due multiple factors, including its debt load. As Olam has since
said, his comments were not overly substantive. But based on this alone,
Olam halted its stock, scheduled two conference calls, discussed buying
back shares, and issued statements that included saying it is not a
“fly-by-night company”. It has further evidenced a bizarre fixation on
baseball caps.


Olam’s disproportionate reaction is extraordinary in our experience. Should
Olam come to collapse (as we believe it will), its use of much-needed cash
to buy back shares at this time should give rise to questions about whether
fiduciary responsibilities have been breached – particularly given the
possible existence of individual motivations that are not necessarily
aligned with those of Olam’s lenders. We also note Olam’s attempts to
impugn our credibility.


You and your investors should note that attempting to silence critics is
not a plan of corrective action. In no way does it make Olam stronger. The
February 2011 CLSA report, which raised far fewer concerns than we have
identified internally, and that Olam itself made so controversial, should
have caused you to work toward repairing what ails your business and your
balance sheet. Instead, Olam has since increased its a) debt load by
approximately S$900 million, b) cumulative investment cash burn by
approximately S$2 billion, and c) cumulative operating cash burn by
approximately S$500 million. In other words, you did the exact opposite of
what you should have done. Your actions have been an abject failure of
leadership.


Companies that attack criticism the way Olam does fail to understand that
raising money from the public is a privilege. Because Olam has received
significant investment from the government of Singapore, Olam’s
mismanagement of the public trust is that much less forgivable. Know this:
You voluntarily came to the market, you subjected yourselves to its forces,
and you must bear the consequences of your ineptitude.


We do not work for an investment bank, and cannot be bullied the way other
analysts can. Our research into Olam has been exhaustive, and we plan to
resolutely stand by it regardless of any attempts you might make to
discredit it or us.


We therefore suggest you find better uses of your time than focusing on
criticism. For instance, you might want to work on plans to reign in your
CapEx and de-leverage. The clock is likely ticking.


Warmest Regards,
Muddy Waters, LLC

In case anyone thinks that MW is doing Olam a favor by highlighting certain things about the business, hey, MW has a big short position and deliberately fired a missle in order to profit from their stock position. There is clearly an objective to its director of research speaking at the ill-chosen charity event to do a non-charitable act towards Olam