(Adds OCBC report, details)
SINGAPORE Dec 4 Maybank Kim Eng downgraded Olam
International Ltd to "sell" from "hold" on Tuesday and
cut its target price to S$1.42 from S$1.75 after the Singaporean
commodities trader announced its fund-raising plan.
For nearly two weeks, Olam has been locked in a battle with
short-seller Muddy Waters, which in a 133-page report said
aggressive spending, accounting practices and debt levels had
left the company on the verge of collapse.
Olam, which is backed by Singapore state investor Temasek
Holdings, has sued Muddy Waters in a Singapore court and issued
a detailed rebuttal of the allegations, saying it was not at
risk of insolvency and had enough liquidity.
Olam is issuing a nominal $750 million of 6.75 percent
five-year bonds at a price of 95 percent, raising $712.5
The bonds have warrants attached that will allow holders to
buy a total of 387 million shares at $1.291, which would raise
$500 million if they were all exercised.
"This exercise may also hurt short-sellers, as script
lenders will have to call for borrowed stock in order to
participate," Maybank Kim Eng said.
"However, management's earlier stance that it could easily
survive 12-18 months even in a credit market seizure may now
sound hollow and minority shareholder confidence may be eroded."
Temasek has a 16 percent stake in Olam, which has
expanded beyond trading into the production and processing of
agricultural commodities from cotton to coffee and cashew nuts.
The state investor's share would go up to 28-29 percent
assuming it takes up all warrants, Maybank said.
OCBC Investment Research said Olam's management hopes the
move will help to dispel any lingering doubts about the
company's viability and solvency, thus shoring up its bond and
"While we think that there could be some near-term boost to
its share price, we note that outlook for the next six months
remains quite muted," OCBC said. It maintained its "hold" rating
and S$1.44 target price on Olam.
(Reporting by Eveline Danubrata; Editing by Paul Tait)