Singapore commodities trader Olam International defended its accounting practices after attacks by short-seller Muddy Waters which media reports said questioned the way it keeps its books, sending its shares tumbling as much as 11% in heavy volume.
Olam, nearly 16%-owned by state investor Temasek Holdings, fell after a delayed start to Tuesday’s trade despite its dismissal of what it called “baseless and unsubstantiated assertions” against it by Muddy Waters founder Carson Block.
The short-selling investor, famed for targeting North America-listed Chinese companies, questioned the way Olam booked profits on certain acquisitions and how it valued its plantations, crops and livestock, The Financial Times reported.
“This is not a black box, this is a black hole,” the FT quoted Block as telling an investment conference in London on Monday. No comment was immediately available from Muddy Waters.
Temasek declined comment and directed all queries to Olam.
Started by the Kewalram Chanrai Group in Nigeria, Olam has grown into a diverse agricultural commodities trading company with interests ranging from cocoa and coffee to sugar and nuts.
Chief Executive Sunny Verghese has aggressively led the company’s expansion as it takes on larger commodity players such as Noble Group and Wilmar International.
Olam also has an industrial raw materials segment which includes cotton, wood and rubber.
“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,” Olam said in a statement.
It said its annual financial statements were audited by Ernst & Young, which said the statements give “a true and fair view of the state of affairs and financial results of the Group and the Company”.
Olam is holding a conference call later on Tuesday.
ACCOUNTING QUESTIONS
Negative reports from Muddy Waters have decimated the shares of several Chinese companies including Sino-Forest Corp, which filed for bankruptcy protection early this year, just 10 months after the short-seller said it had exaggerated its assets.
Muddy Waters has had a mixed track record, however, and the share prices of some companies spotlighted in its reports have managed to bounce back.
“Muddy Waters seems to target companies with quite complex business models and accounting structures, so it’s difficult to get a handle on what is exactly happening in the company,” said David Smith, head of corporate governance at Aberdeen Asset Management Asia.
“Given the complexity of the companies that they target, it means that there’s always that lingering doubt regardless of what the company says,” Smith said.
Olam’s US shares fell 21% in after-hours trading on Monday following media reports of Block’s comments.
On Tuesday, Olam’s Singapore shares fell to their lowest since early June, down 24% so far this year in a broader market up 12%.
Olam was the biggest loser in a market up 0.3% on Tuesday. Trading volume surged to 120 million shares, 11 times its average full-day volume over the last 30 days and the highest volume since February 2011.
Analysts noted, however, that the reporting of transactions in commodity companies was a complicated matter.
“The allegations are actually nothing really new. The first allegation is that Olam is booking profits on transactions before it’s clear how deals will work out over time,” said James Koh, an analyst at Maybank Kim Eng.
“In many transactions, commodity traders like Olam would book gains once both buyer and seller ends are signed and price risk is hedged. The main risk here is counterparty risk, if one party reneges before the delivery date is due. That’s what happened with cotton.”
Markets have previously raised concerns over Olam’s accounts.
In February 2011, Olam issued a statement denying there were inaccuracies in its accounts after a CLSA analyst raised concerns about internal controls, citing multiple and sometimes significant differences between Olam’s audited and unaudited statements. Olam’s shares tumbled after the report was issued, falling nearly 20% in three days during the final week of February before managing a bounce.
Olam said CLSA analyst Swati Chopra used some examples which were incorrect. Chopra left CLSA a few months after the report was published and now works at a rival bank.
Olam reported a 26% rise in first-quarter net profit last week, spurring a pickup in its shares. Out of 21 analysts tracking the stock, 15 have “buy” or “strong buy” ratings, five have “hold” recommendations, and one has a “sell” call, Thomson Reuters data shows.
No comments:
Post a Comment