Muddy Waters-Olam Saga Far from Over

on Dec 3, 2012

**Olam’s Response to Block’s Accusations Helps Shares Gain Ground**

As iNVEZZ reported last month, Olam International (SGX:O32), one of Asia’s largest agribusiness companies, has started a battle with short-seller Muddy Waters after its founder, Carson Block, levelled allegations at Olam’s accounting practices and debt levels. Unlike Muddy Waters’ previous targets, such as Sino-Forest (PINK:SNOFF), the Chinese timber company which following similar accusations slumped 74 per cent before eventually filing for bankruptcy protection in March, the Singaporean agribusiness reacted immediately and more aggressively to Block by taking the case to court two days after the attack. Besides the lawsuit, Olam has also rebutted allegations of accounting flaws in a 45-page response and held several meetings with media, analysts and investors in a bid to protect its reputation and investors’ trust.

As a result of Olam’s immediate reaction, its shares have managed to regain ground after falling 21 per cent the day of Block’s first comments, Bloomberg reported on 3 December 2012. Currently, the commodities trader’s stock is down 9.5 per cent from before the accusations were made. On Friday, Olam’s shares closed at S$1.575 and today the company halted them, ahead of an announcement of “an initiative led by the company involving shareholders.” The commodities trader said that it will make the announcement before the market starts trading on Tuesday.

**Muddy Keeps Its Foot on the Pedal**
Last week, Muddy Waters, which is known for publishing highly critical reports on Chinese companies listed in North America, released its long-awaited research report on Olam, officially accusing the Singaporean commodities trader of incompetence and a litany of other problems and saying it was running a high risk of failure.

“We value Olam on a liquidation basis because our opinion is that it is likely to fail,” Muddy Waters said in its 133-page report published on its website. “The vast majority of the acquisitions we have researched are of low quality assets that appear to bring little more than cosmetic benefits to Olam,” the report further stated.
**Muddy May be Beyond Reach, but Olam Seeks Vindication**

!m[Olam’s Lightning Lawsuit Helps in Bid to Win Investors, But Prolonged Dispute Impacts Commodities Sector](/uploads/story/948/thumbs/pic1_inline.png)Muddy Waters, by issuing such a long and detailed report, is either prepared for a hard-fought battle or feels that they are beyond reach, Gideon Benaim, a reputation protection lawyer at Michael Simkins LLP in London told Bloomberg. Indeed, law experts say that should Olam eventually win its case, enforcing a judgment in the US will be difficult because of its free-speech protection laws. Yet, according to Benaim, people sue for defamation more to vindicate their reputation in the court of public opinion than for money. He said: “Whether Olam can recover costs or damages may be of little significance to them.”
**Battle Weighs on Commodity Sector**
As the Muddy Waters-Olam saga continues, commodities trading executives have raised concern over its effects, noting that it is already impacting the appetite of Singapore’s capital market to finance the sector, The Financial Times reported on 3 December 2012.
The worry is that the attack by Muddy Waters on Olam, could make investors nervous about the whole commodities sector. Industry executives in Singapore, Hong Kong, Geneva and New York privately say they fear some investors – particularly wealthy individuals – will take a step back from financing the industry until the waters around Olam clear.
The Muddy Waters-Olam dispute has another consequence – many executives feel it is a lesson for those considering listing their shares. “No one would be paying any attention to Olam if it was still a privately owned company,” an unnamed agribusiness company’s chief executive told *The Financial Times*. “Many will feel that their caution about the public market was justified,” he added.