Muddy Waters said in its latest 140-page report that Olam International Ltd (SGX:O32) runs an extremely high risk of failure. The short seller had earlier questioned Olam’s accounting practices. Muddy Waters said that the Singaporean commodity trader bears “uncanny” resemblance with the failed U.S. company Enron.


However, Olam International Ltd (SGX:O32) said that it would continue to raise debts to support its expansion plans. Olam has increased its net income by over 200 percent in the past five years , especially through acquisitions in Australia, Russia, the United States, and Nigeria. The world’s second largest rice trader has acquired 43 firms for approximately $1.83 billion. Olam’s chief executive officer said the company would raise debts through any pool, including syndication, bank lending, bond markets, or Islamic finance.

During a conference call in London last week, Muddy Waters chief Carson Block said that Olam was on the verge of collapse. The war of words between Olam and Muddy Waters grew so much that Olam CEO Sunny Verghese filed a lawsuit against Muddy Waters in Singapore’s high court. He said that the Hong Kong and United States based short seller is spreading baseless assertions so that it can benefit from its short position.

Olam shares had declined 7.5 percent after Carson Block’s comments. Olam International Ltd (SGX:O32) has S$8.4 billion (Singaporean dollar) in debts as of September 30, 2012.

In its latest report, Muddy Waters gives following reasons why it considers Olam a strong sell:

  • Olam International Ltd (SGX:O32) says that its acquisitions will start generating cash flows by 2015-16. It doesn’t make sense to Muddy Waters, which thinks Olam’s “asset heavy” strategy is off-the-rails. Additionally, Muddy Waters found that Olam is marred by significant misconduct and incompetence. The acquisitions Olam has made are of extremely low quality. They don’t bring anything more than cosmetic benefits to Olam.
  • Muddy Waters found that Olam spent spent S$571.0 million less on its acquisitions than publicly announced. Since 2011, Olam has been doing many more greenfield projects than we realized. Olam also has significant cash leakage. Muddy Waters said especially bond holders should ask where their money goes.
  • Over the years, the commodity trader has committed a number of accounting gaffes. Muddy Waters has valued Olam at liquidation basis because it thinks Olam International Ltd (SGX:O32) will finally collapse. If the company fails, the present value of its debts would be no more than 12-13 cents for a dollar.