* Muddy Waters questions Olam's accounting practices
* Olam says would consider share buybacks
* Shares close down 7.5 percent
(Adds short-selling data, hedge fund quote)
By Eveline Danubrata and Anshuman Daga
SINGAPORE, Nov 20 Singaporean commodities trader
Olam said an attack on its prospects and accounting
practices by Carson Block, the founder of shortseller Muddy
Waters, was "baseless and unsubstantiated".
Shares in Olam, 16 percent-owned by Singapore state investor
Temasek Holdings - which would not comment on th
matter, closed down 7.5 percent in heavy volume on Tuesday.
Muddy Waters, best known for targeting North American-listed
Chinese companies, questioned Olam's capital expenditure and
"We are unable to reconcile its capex (from last year) with
announced projects," Block told a conference in London on
Monday. He said his investigators had looked at Olam's
investments in Africa, Asia and the United States.
"They have been very active in the public debt market. There
is a lot of paper to short," he said.
Olam has $4.125 billion outstanding debt, including bonds
and loans, according to Thomson Reuters CreditViews. The bulk of
its bonds are held by retail investors who can be quick to
unload paper, making for volatile prices.
Olam's 5.75 percent bonds due 2017 fell 5
percentage points to 91/92 cents on the dollar.
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 nuts and sugar.
Chief executive Sunny Verghese has led an expansion that has
seen it take on larger commodity players such as Noble Group
and Wilmar International.
Olam also has an industrial raw materials segment which
includes cotton, rubber and wood.
"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.
Olam is the most borrowed stock among Singapore's top 30
companies, suggesting heavy demand from short sellers.
Nearly 80 percent of Olam's shares that can be borrowed were
out on loan, compared with an average of about 6 percent for the
index constituents, according to Markit Securities Finance.
Also at the conference on Monday, John Armitage, chief
investment officer of London-based Egerton Capital, said he was
short Olam shares, saying the stock was "a great short".
Olam said its annual financial accounts were audited by
Ernst & Young, which said the statements gave "a true and fair
view of the state of affairs and financial results of the group
and the company".
Company officials said in a conference call it would be able
to fund operations for 18 months even if it were shut out of the
debt markets as a result of the allegations by Muddy Waters, and
it would now consider share buybacks after its price fell.
Past reports from Muddy Waters have hit shares in several
Chinese companies including Sino-Forest Corp, which filed for
bankruptcy protection early this year 10 months after the
shortseller said the company had exaggerated its assets.
Muddy Waters has a mixed track record, however, and the
share prices of some companies in its reports have bounced back.
"Muddy Waters seems to target companies with quite complex
business models and accounting structures. So, it is difficult
to get a handle on what is exactly happening in the company,"
said David Smith, head of corporate governance at Aberdeen Asset
"Given the complexity of the companies that they target, it
means that there is always that lingering doubt regardless of
what the company says," he said.
In February 2011, Olam denied 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 said CLSA analyst Swati Chopra used examples which were
incorrect. Chopra left CLSA a few months after the report was
published and now works at a rival.
Olam reported a 26 percent rise in quarterly net profit last
week. 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 showed.
(Additional reporting by Laurence Fletcher in London, Kevin Lim
in Singapore, and Umesh Desai and Vikram Subhedar in Hong Kong;
Editing by Dan Lalor and Edmund Klamann)