* Olam starts legal action in Singapore High Court
* Muddy Waters letter criticises Olam debt, cash burn
* Short-seller says will defend itself "vigorously" if it
* Stock rebounds after prior day's fall
* Muddy Waters has yet to issue formal research report
(Adds Muddy Waters comment)
By Eveline Danubrata and Michael Flaherty
SINGAPORE/HONG KONG, Nov 21 Olam took
its battle with short-seller Muddy Waters to court on Wednesday
as the Singaporean commodities trader fought off criticism of
its accounting practices and debt levels that hit its bond and
Olam, 16 percent owned by Singapore state investor Temasek
, has filed a suit against Muddy Waters and its founder
Carson Block in the High Court of Singapore, alleging libel,
slander or malicious falsehoods for statements Block made at a
London conference on Monday, a company spokeswoman said.
She said Olam was seeking unspecified damages.
"We have not received a lawsuit and, should we have to
defend ourselves, we will do so vigorously," a Muddy Waters
Muddy Waters, which makes money by betting against
companies, has issued devastating reports in the last few years,
mainly aimed at China-based firms. Some of the reports crushed
shares of the targets, although others were able to recover.
Block's comments, which had singled out Olam's accounting
practices and questioned its prospects, triggered a fall in
Olam's Singapore-listed shares on Tuesday of 7.5 percent.
The stock rose 5.3 percent on Wednesday.
Muddy Waters kept up its attack with a letter dated Nov. 20
and posted to its website that criticised Olam's debt and cash
burn, but this time investors took the salvo in their stride.
Traders and analysts noted the letter was not as scathing as
previous, formal research reports issued by Muddy Waters.
"The detailed report is still not out yet," said a Singapore
trader referring to Olam's stock rebound. The trader was not
authorised to speak publicly. It is unclear whether Muddy Waters
will publish a formal report on Olam or not.
Olam's shares rebounded on Wednesday and were the biggest
gainers in the benchmark Straits Times Index, which
ended flat. Although the stock clawed back some of the previous
day's loss, it is still down about 20 percent so far this year,
while the index is up 12 percent.
Analysts said the saga may be a long, drawn-out affair.
"It does show that Olam is putting up a good fight, but the
outcome of this case remains to be seen," said Wen Ching Lee,
analyst at CIMB Research in Singapore.
"Investors could be hesitant to buy the shares until this
entire saga has blown over. Right now there is a lot of
uncertainty as to whether Muddy Waters will make further
allegations," she said.
DEBT, CASH BURN
Olam on Tuesday gave a strong defence of its business,
calling Block's attack "baseless and unsubstantiated" and
assuring that it could fund operations for 18 months even if it
were shut out of the debt markets. It also said it would
consider share buybacks after the drop in its stock price.
Muddy Waters followed by stepping up its offensive.
"Should Olam come to collapse (as we believe it will), its
use of much-needed cash to buy back shares at this time should
give rise to questions about whether fiduciary responsibilities
have been breached," said the relatively brief letter, addressed
to Olam's CEO and its board.
This was not the first time accounting has been questioned
In February 2011, the company 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.
Muddy Waters cited the 2011 CLSA note in its letter.
"Olam has since increased its a) debt load by approximately
S$900 million, b) cumulative investment cash burn by
approximately S$2 billion ($1.63 billion), and c) cumulative
operating cash burn by approximately S$500 million," the letter
Olam has $4.125 billion of 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 bonds were trading steadily on Wednesday, but below
the levels seen before the Muddy Waters' allegations.
The bonds due in 2017 were at 93-94.5 cents
on the dollar and 2020s were at 94.5-96, both
recapturing more than half their losses at the previous day's
lows. Before the allegations surfaced, the bonds were at 98 and
Olam has grown from its origins in Nigeria 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.
Muddy Waters may not be the only firm betting against Olam,
which 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.
($1 = S$1.2249)
(Additional reporting by Anshuman Daga in Singapore, Umesh
Desai in Hong Kong and Laurence Fletcher in London; Editing by
Edmund Klamann and Erica Billingham)