Short-selling fund Muddy Waters kept its "strong sell" rating on crop trading giant Olam International despite the cashews-to-wheat group unveiling a review of strategy in which there would be "no sacred cows".

Muddy Waters – which claims that Olam risks insolvency thanks to high debt exposure and aggressive accounting practices, allegations the commodities house strongly denies – acknowledged the Singapore-based group's second-quarter results revealed some steps in what it believes is the right direction.

"One of the bright spots for Olam investors is that the company appear to be trying to rein in its capex and acquisition spending," the group said.

Olam, unveiling late on Thursday a rise of 5.9% to Sing$136.1m in underlying earnings for the last three months of 2012, revealed it was "recalibrating its strategy", a process which looks set to reduce its debt burden.

Sunny Verghese, the Olam chief executive, said that "definitely slowing down capex is one of the options that we would actively consider" for the strategy review, which would have "no sacred cows".

'Burden is not sustainable'

However, Muddy Waters restated concerns over Olam's borrowings, which rose by Sing$1.3bn to Sing$8.8bn over the last six months of 2012.

"Olam's main problems worsened" over the quarter, the research firm said, terming some debt-to-earnings indicators "dangerously high".

"With Olam's bonds yielding approximately 7% to 8% (which we feel is too low), Olam's interest burden is not sustainable," said Muddy Waters, headed by Carson Block, which has attacked a string of other Asian companies over accounting.

And the concerns found some echo at broker Maybank, which restated a "sell" rating on Olam stock, with a target price of Sing$1.30, cautioning of "weakness" in core profits which "continues to stem from the increasing debt and overhead loads".

"We do not see reason to own the stock, given risk associated with refinancing in the next 18 months," Maybank, which is also based in Singapore, said.

Shares rise

However, rival broker OCBC took a more upbeat line on the data, noting that Olam "typically sees the highest gearing" at the end of the calendar year, and terming as "positive" the strategy review.

OCBC maintained a "hold" rating on Olam shares, but, saying the group's profits had beaten its forecasts, raised its target price of the stock to Sing$1.50 from Sing$1.44.

The shares closed in Singapore on Friday, the first trading session after the results were released, up 2.1% at Sing$1.67.

The shares have now recovered 22% from a December low reached in the wake of the allegations by Muddy Waters, which has had some success in unearthing misaccounting at other companies, including Sino-Forest Corp, typically Chinese based but listed on Western exchanges.

Legal hiccup

Mr Verghese also revealed that Olam, which has launched a claim for damages against Muddy Waters and Mr Block, had met with mixed success in pursuing its case.

"We successfully, after a long time, served notice on Muddy Waters," Mr Verghese told inevstors

"We have still not succeeded in serving notice on Carson Block. And he has eluded all our attempts to serve him. We still continue to try to serve him."

He added that a preliminary report for Olam on assets belonging to Muddy Waters and Mr Block showed that "neither Muddy Waters nor Carson Block has any assets of any value in their names".