Muddy Waters, the famous short biased research firm, has a new report on Olam International Ltd (SGX:O32). The Singapore based company was the target of Muddy Waters in late 2012, but there has been little news on the topic as of late. Muddy Waters has just issued a new report attacking Olam and stating that the company likely cannot repay its debt and shares are worthless. Below is a brief excerpt followed by the full report in scribd.

AMT Carson Block Muddy Waters

We continue to believe that, in a world where capital is allocated to maximize economic efficiency, Olam’s shares have no value. The Company has simply borrowed too much money, and then invested in projects that will not generate sufficient returns to repay its debt obligations. In this note, we will only briefly comment on Olam’s FY 2013 results. (Numerous analysts have already done so.) Instead, we will focus on qualitative points that cause us to believe Olam is not really turning over a new leaf.

Olam’s FY 2013 results display the pathologies we noted in November 2012:

• Adjusted return on average assets was only 1.8%. (We adjusted net income to S$261.8 million by excluding from Olam’s operational profit after tax all biological gains and changes in measurement of derivatives.

For an explanation of how and why we make adjustments to Olam’s net income, see our initial report dated November 26, 2012.)

• Allowance for doubtful accounts more than halved from S$22.6 million to S$9.6 million, which made FY 2013 a less unfavorable a comparison to FY 2012.

• Inventory write-downs were only S$115,000, versus S$15 million last year, which also made FY 2013 a less unfavorable comparison to FY 2012.

• Free cash burn was S$800.4 million, and Olam spent S$1.1 billion on acquisitions and investments in FY 2013.The big picture issue is that we are skeptical Olam will operate differently in the future.

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