Shares in Olam International revived despite a fresh attack
from Muddy Waters, the short-selling fund, which warned that the agricultural
commodities trader would "collapse", and accusing its boss of an "abject
failure of leadership".
Muddy Waters, whose initial warning on Monday that Olam represented a "black hole" sent shares in the group down 21% in the US over-the-counter
market, in a follow-up attached accused the group of "mismanagement of the public
trust" in its handling of its finances.
Rather than reducing its debt burden and rate of cash burn,
to correct criticisms lodged by broker CLSA last year, Olam had raised its
borrowings and spending, Muddy Waters said in a letter to Sunny Verghese, the
trading group's chief executive.
"In other words, you did the exact opposite of what you
should have done. Your actions have been an abject failure of leadership," the
'Clock is likely
Muddy Waters, which is said to be preparing to publish an 80-page
report on Olam, also said it believed that the trader would "collapse", without
giving details, and criticised the group for a "frantic response" to Monday's attack.
On Tuesday, Olam, temporarily, halted dealing in its
Singapore-traded shares, its main listing, organised two conference calls and
sent out two press releases.
"We suggest you find better uses of your time than focusing
on criticism," Muddy Waters, headed by Carson Block, said.
"For instance, you might want to work on plans to reign in
your capex and deleverage. The clock is likely ticking."
However, Olam's Singapore-listed shares rebounded on
Wednesday, closing 5.3% higher at Sing$1.695, and recovering more than half the
ground lost in the previous session.
At broker Maybank Kim Eng, analyst James Koh, kept a "hold"
rating on Olam shares, noting Muddy Waters "mixed track record" since an attack
on China-based Sino-Forest Corporation saw the timber group delisted and file
for bankruptcy protection.
"Without the benefit of the full [Muddy Waters] report, we
think the broad claims so far are nothing really new and agree [with Olam] that
they are unsubstantiated," Mr Koh said.
"The broader question investors should be asking is what
kind of valuation to attach to a business which is inherently complex," he
said, sticking with a target price for Olam stock of Sing$1.61.