(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 million.
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 share prices.
"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)