Muddy Waters LLC, the research firm founded by short seller Carson Block, likened commodity trader Olam International to energy trader Enron Corp. saying it runs a high risk of failure.
Muddy Waters rated Olam a strong sell in a 133-page report posted on its website today saying it values “Olam on a liquidation basis because our opinion is that it is likely to fail.” It estimates the present value of Olam’s debt at 14 to 33 cents in the dollar.
“We believe it is instructive to view Olam through the lens of failed U.S. trader Enron Corp.,” Muddy Waters said on its website. “There are a number of material similarities in the way their businesses developed, and their actions.”
Olam Chief Executive Officer Sunny Verghese, 53, yesterday stood by the company’s debt-funded expansion as the world’s second-biggest rice trader defends itself in its first ever law suit. The Singapore-based commodity trader declined 2.7% to $1.615 at 2:41 p.m. local time after the report was released.
The company has lost 7.5% since Block first questioned Olam’s accounting methods on Nov. 19 at an investment conference in London.
Calls to the mobile of Aditya Renjen, Olam’s general manager of investor relations, after the release of the Muddy Waters report, went unanswered. Verghese said he hadn’t seen the report when contacted on his cell phone after its release.
SPENDING PLANS
“We don’t think it’s in the best interest of our continuing shareholders” to abandon spending plans, Verghese, who established Olam in 1989, said yesterday in an interview in Singapore.
That includes committing to investments of $3.2 billion to $3.7 billion in fiscal 2013 to 2015, against $3.3 billion spent from 2010 to 2012, the first three years of a six-year program, Verghese said.
Block’s remarks were malicious falsehoods, Olam said in its lawsuit filed in the Singapore High Court on Nov. 21. The company is seeking unspecified damages, costs and an injunction against republication of the comments.
To download the full report, click here.
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