* Short-seller had warned last week on Olam accounting
* Olam shares extend losses in late trade, end 6 pct lower
* Olam says report's claims lack substance, defends its
(Adds details from Muddy Waters report, Olam's response)
By Kevin Lim
SINGAPORE, Nov 27 Short-seller Muddy Waters
published a long-awaited report on Olam International Ltd
with detailed attacks on acquisitions and accounting
at the Singapore commodities firm it has said may fail, but Olam
dismissed the latest salvo as lacking substance.
The battle between the two firms, which began with comments
by Muddy Waters' founder last week and which Olam has escalated
to a Singapore court, has cast a spotlight on common accounting
practices at commodities firms.
It also raises questions about Muddy Waters' practice of
issuing devastating comments and reports about companies, until
now mainly China-based firms, in hopes that the share prices
will fall. In some cases its reports have crushed the targets'
shares, although others have been able to recover.
"We value Olam on a liquidation basis because our opinion is
that it is likely to fail," Muddy Waters said in a 133-page
report 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."
Olam, which is 16 percent owned by Singapore state investor
Temasek Holdings Pvt Ltd, rejected the claims: "Our
accounting practices are compliant with international accounting
standards, which are independently verified by Ernst & Young."
Olam had described attacks against it last week by Muddy
Waters founder Carson Block as "baseless and unsubstantiated"
and filed a suit against both the firm and Block in the
Singapore High Court alleging libel, slander or malicious
"Muddy Waters has laid the claims very clearly now and Olam
will have to mount their defence, and convince investors why
they did certain things Muddy Waters claims are not correct,"
said Carey Wong, an analyst at OCBC Investment Research.
"The ball is now in Olam's court."
Olam's shares ended down 6 percent at S$1.56 on Tuesday,
near a five-month low of S$1.545 hit last week after Block's
initial comments attacking the company's accounting practices
and its prospects. Olam's 2017 bonds were traded
at 86/88 cents on the dollar, down from Monday's 91/92.
FLOUR MILLS, RICE FIELDS
Muddy Waters' reputation is also at stake in the battle with
Olam as it takes on bigger fry after attacks on North
America-listed Chinese companies that have produced mixed
"It was interesting but there's nothing that stands out - no
smoking gun," said one Singapore banker of the short-seller's
detailed report. The banker was not authorised to speak to the
media and asked not to be named.
Olam, started by the Kewalram Chanrai Group in Nigeria,
began as a trader of agricultural commodities with interests
ranging from cocoa and coffee to nuts and sugar.
The company has been diversifying into new areas in recent
years through acquisitions and it now owns plantations and
processing plants around the world.
Muddy Waters, in its report, criticised Olam's actions in
many of those acquisitions.
It alleged that the value of property, plant and equipment
held by Crown Flour Mills (CFM), a Nigerian company that Olam
acquired for $107.6 million in January 2010, was vastly
overstated and that disclosures about the asset were misleading.
"When Olam acquired CFM on January 12, 2010, it valued the
net PP&E (property, plant and equipment) at S$168.6 million,"
the report said. "The real book value of the acquired assets
should have been less than S$38 million - probably much less."
Muddy Waters also criticised acquisitions of a rice farm in
Nigeria, a tomato processor in California and a farming
operation in Uruguay, based on a three-month investigation.
Muddy Waters said Olam may have tried to scale its trading
businesses too far and too fast, "which resulted in substantial
"At the end of the day, it is cash -- and not purely
accounting profits -- that businesses exist to generate," it
added, citing Olam's negative cash flow in recent years due to
aggressive expansion and acquisitions.
(Additional reporting by Charmian Kok and Saeed Azhar in
Singapore, Umesh Desai in Hong Kong; Editing by Edmund Klamann)