Muddy Waters releases report on Temasek's Olam - shares plunge 6%!

[oldnews]

Olam

received these 2 little writeups for those of you who are interested.








DJ Olam Tumbles in Singapore; Down 11.4% From Tuesday''s High (2012/12/05 15:52PM)



SINGAPORE--Olam International Ltd.'s (O32.SG) shares tumbled again Wednesday, falling as much as 5.9%, indicating that any enthusiasm generated by the company's planned US$1.2 billion rights issue has more than faded.

Olam shares shot 8.6% higher early Tuesday--following news of the rights issue Monday evening--but retreated to close only 1.6% higher. The stock was down 5.3% at 1.515 Singapore dollars at 0734 GMT, a decline of 11.4% from Tuesday's high of S$1.71 and nearly 13% since Nov. 19, when short-seller Carson Block fired the first shot across Olam's bow in a speech in London, questioning the company's solvency and accounting methods.

On Tuesday, Mr. Block said his research firm, Muddy Waters LLC, is "still short" Olam despite the rights issue, which he said "solves nothing." "This thing has a lot more downside," he said.

Olam has repeatedly denied Mr. Block's and Muddy Waters's claims. Its fundraising plan has the backing of Singapore state investor Temasek Holdings, Olam's second-largest shareholder with a 16% stake. Olam Chief Executive Sunny Verghese said it represented a "strong vote of confidence" that should dispel doubts about the company.

Still, market data showed Olam shares being sold in large blocks Wednesday, indicating institutional activity. Olam's move may have come too late to counter funds' efforts to spruce up their year-end lists by removing the company's name.

Kevin Scully, executive chairman of NRA Capital, said Wednesday that Olam's cost of capital was untenable. Prior to announcing the rights issue, its bonds were trading at yields of 10%-12%, indicating that its "credit was perceived as suspect" and forcing it to look at equity, he said.

But Olam needs to raise three times the amount the rights issue will raise, he estimated.

"This recent issue isn't big enough to solve their problems," he said. "They have to start selling assets to reduce the gearing or they have to increase the amount of shareholder funding support."



Write to Leslie Shaffer at [email protected] and Gaurav

 

[oldnews]

Re: Olam

Muddy Waters is not the issue here, it is Olam's strategic and financial decisions that have brought this situation to a head.

[SINGAPORE]

OLAM'S announcement of a major financing package this week has been characterised as ranging from a "government bailout" to a "vote of confidence". Either way, it is time for Olam to get serious about creating long term sustainability. Having missed the point earlier this year from the Feb 21 CLSA report, the emergence of a significant short position, a 30 per cent decline in Olam's share price since and the resignation of Olam's 20-year CFO in June, Olam's management and board remain in denial. The short-seller research firm Muddy Waters produced an extensive 133 page report which Olam dismissed as out of hand and responded to with a lawsuit which dilutes management bandwidth, wastes shareholders' money and does not address the root causes of Olam's problems. In short, Muddy Waters is not the issue here, it is Olam's strategic and financial decisions that have brought this situation to a head.

The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn't need. The package of US$750 million of five-year debt and so-called "free" warrants are hardly free as they have tremendous value. Black-Scholes models have valued these warrants to be worth an estimated US$127 million. Since Olam's proposed US$750 million of debt is priced at 95 per cent of par, the proceeds, before fees, are actually US$712.5 million including the warrants. By backing out an estimated warrant value of US$127 million, the true bond value is actually only US$585 million, equal to 78 per cent of the original bond value. Thus, the true yield on the bond is not the 8 per cent that Olam would like investors to believe, but rather a whopping 13 per cent. Given the generous nature of these terms and Temasek's commitment to fully take up the rights issue, one has to wonder why Olam is paying US$15 million in underwriting fees to the banks who are taking no risk. If you back out those fees, the cost of this debt is an even more eye-popping 13.7 per cent.

In other words, Olam is offering existing investors a bond yielding an estimated 13 per cent and at-the-money warrants which can only be exercised in years 4 and 5. No wonder Temasek wants to underwrite the entire deal - this is the sale of the century, just in time for Christmas. But before shareholders get too excited about shiny packages under the tree, they should consider that this is just a left-pocket, right-pocket deal. The shareholders are paying for this lavish set of terms. The real losers are the bondholders, not to forget the investors who only a few months ago bought the US$275 million perpetual preferred shares issued at 100 per cent that are now quoted at 82 per cent. Their already over-leveraged securities just got more risky and they get no benefit from this package. And of course any investors unable to take up their rights will see them go to Temasek, who has no shortage of capital.

Muddy Waters' boss Carson Block did not magically create these concerns. He merely capitalised on a well-researched bet. This process is explained with wit and insight in

The Big Short by the author Michael Lewis and is a healthy aspect of capitalism. Now the market is left to sort out what is true and what the end game is.

Since this has not been done yet, I hereby submit to Olam's shareholders a 10-point plan of "tough love" to restore credibility and take definitive actions to reposition a great company for a healthy future:

1) End the war of words. Anyone reading Muddy Waters' 133 page report will see a credible work of research. The market has not been impressed with Olam's attempts to discredit Muddy Waters with ad hominem attacks and lawsuits. What's needed now are strong actions, not words.

2) Raise equity, not more debt. Olam made a strategic error in saying equity was not needed until 2015. It needs equity now. Its net gearing of 248 per cent is well in excess of industry norms and the US$750 million new debt makes matters worse and adds USD/SGD foreign exchange risk to boot. Olam should cancel the egregiously expensive debt issue and execute a meaningful equity rights offering giving the KC Group, Temasek and management the opportunity to take up rights that are unsubscribed, if any. This will underpin Olam's equity capital while demonstrating the commitment of its largest shareholders and management. Selling 13 per cent debt with at-the-money warrants is a sign of desperation.

3) Immediately stop the capital expenditure programme. This is essential as the supply of cheap debt is over. Olam's board must stop the acquisitions, conserve cash and prove the value of the acquisitions to date.

4) Focus on generating positive cash flow as soon as possible. Rule No 1 of battlefield triage is to stop the bleeding. Negative cash flow while executing a capex and acquisition programme with ever increasing leverage is untenable.

5) Sell secured receivables. Olam has said that its secured receivables are as good as cash. It should demonstrate that by selling a meaningful amount, raising cash, paying down short term debt, creating liquidity and convincing the market of these receivables' cash-like properties.

6) Draw down a portion of both committed and uncommitted bank lines. Olam is currently closed out of the fixed income capital markets and the availability of its undrawn, fully committed and uncommitted facilities remains in question. In light of Olam's significant upcoming 2013 debt maturities, showing the availability of committed and uncommitted facilities would boost market confidence.

7) Get the debt rated. Olam has raised billions from the Singapore debt markets with no independent rating of creditworthiness. An independent assessment of Olam's credit is required for investors, many of whom are individuals. The argument that others in the industry do not have a rating is untenable and specious. Olam's net gearing of 248 per cent far exceeds Noble's at 107 per cent and Wilmar's at 88 per cent. The MAS and SGX, whose silence have been deafening, should also publicly back this initiative.

8) Do not buy back stock. A stock repurchase programme burns valuable cash, increases leverage and will not impact Olam's share price. In fact, it would likely only further worsen the precipitous declines in its bond and preferreds prices.

9) Declare if management shares are on margin or pledged. While in the past, it could perhaps be argued that this is a personal matter, with so many questions hanging over the company, management needs to treat its shareholders as partners and declare if any shares are encumbered and could be force-liquidated at a given price point and if so, what that is.

Olam should also disclose the timeline of the events leading up to the announcement of the Temasek underwriting as the storyline has been shifting. Olam claimed this was its idea over the weekend and had the bankers take it to Temasek. Yet Olam also said last Friday that the CEO and two board members bought significant shares in the company. Did the idea emerge after those purchases were made and if so, when and how? There is no need to have questions about possible conflicts of interest when a simple timeline can put the issue to rest.

10) Don't rely too much on Temasek in future. Too often the market believes that when Temasek is invested for over 15 per cent, they will underwrite problems that occur and banks, investors, management, and boards can then get sloppy and lazy. As a professional investor, Temasek will do what is in its commercial interest and those who bet on additional bailouts may one day have a rude awakening, as has happened in the past. The US$750 million debt and warrants package is one sweet deal for Temasek and is not being done for charitable reasons.

Olam, as a trading business, has failed to grasp the realities of the post-financial crisis era. Today balance sheets, accounts and financing must be beyond reproach. Olam has not achieved this, but has continued to travel a dangerous path in recent years fuelled by readily available credit. It has a fiduciary responsibility to its equity and debt investors to respond with a credible and thoughtful plan of action to preserve and enhance value.

Olam has paid an extremely dear price to Temasek to buy some time. How it proceeds from here will be the existential question.

Michael Dee, an investment banker for over 30 years, was Morgan Stanley's regional CEO in Singapore and a Senior Managing Director of Temasek Holdings from August 2008 to April 2010. He has no position in any Olam securities.

 

[Equalisation]

Re: Olam

Sekarang $1.465. Last call to offload binya. Ini stock manyak toxic !:o

 

[ray_of_hope]

Re: Olam

What price to nibble for a trade?

 

[wendychan]

Re: Olam

What price to nibble for a trade?

long or short?

 

[ray_of_hope]

Re: Olam

long or short?

A short-term punt. Safer to long as you don't know whether there would be another intra-day halt in trading.

 

[wendychan]

Re: Olam

i think a naked short would be more profitable, but in this case, i got no balls

 

[Liquigas]

Re: Olam

Ever go below a dollar in Dec 08...

 

[ray_of_hope]

Re: Olam

Question is whether Olam management is going to sit quiet as the stock plunges and its various stakeholders get spooked or will it initiate something else and there could be a sharp price rebound?

 

[watchman8]

Re: Olam

What price to nibble for a trade?

Go casino better.

 

[Merl Haggard]

Re: Olam

Question is whether Olam management is going to sit quiet as the stock plunges and its various stakeholders get spooked or will it initiate something else and there could be a sharp price rebound?

Not that the keling CEO did not try to support Olam price.

Three days ago ah neh personally bought up 1m Olam shares at 1.57 in the open market.

He was so desperate to let all the pigeons know about his purchase that he announced it at 2 pm which was unusual.

Announcement of insider purchase is normally made after market close and that is after 5pm.

When I read the report of his announcement at 2 pm, I knew that he was very desperate and I asked all my khakis to short Olam.

Olam closed at 1.45, down 6.5c or 4.3%.

 

[jw5]

Re: Olam

Not that the keling CEO did not try to support Olam price.

Three days ago ah neh personally bought up 1m Olam shares at 1.57 in the open market.

He was so desperate to let all the pigeons know about his purchase that he announced it at 2 pm which was unusual.

Announcement of insider purchase is normally made after market close and that is after 5pm.

When I read the report of his announcement at 2 pm, I knew that he was very desperate and I asked all my khakis to short Olam.

Olam closed at 1.45, down 6.5c or 4.3%.

Do you know how many shares Michael Lim bought and at what price?

 

[wendychan]

Re: Olam

http://www.straitstimes.com/breakin...-verghese-supports-counter-share-purchase-201

By Lee Su Shyan

Olam International's chief executive officer Sunny Verghese has shown his support for the troubled firm with a purchase of one million Olam shares today.

This purchase is his first since allegations of dodgy accounting practices surfaced nearly two weeks ago. He paid $1.54 a share.

Board directors Michael Lim and Robert Tomlin also weighed in on Thursday to buy shares. Mr Tomlin bought 200,000 at $1.55 apiece while Mr Lim paid $1.545 each for 200,000 shares.

 

[jw5]

Re: Olam

http://www.straitstimes.com/breakin...-verghese-supports-counter-share-purchase-201

By Lee Su Shyan

Olam International's chief executive officer Sunny Verghese has shown his support for the troubled firm with a purchase of one million Olam shares today.

This purchase is his first since allegations of dodgy accounting practices surfaced nearly two weeks ago. He paid $1.54 a share.

Board directors Michael Lim and Robert Tomlin also weighed in on Thursday to buy shares. Mr Tomlin bought 200,000 at $1.55 apiece while Mr Lim paid $1.545 each for 200,000 shares.

thanks wendy.

 

[wendychan]

Re: Olam

.....

When I read the report of his announcement at 2 pm, I knew that he was very desperate and I asked all my khakis to short Olam.

Olam closed at 1.45, down 6.5c or 4.3%.

How did you manage to short? through CFD?

 

[LITTLEREDDOT]

Re: Olam

[h=1]Olam Plunges After Dee Calls for Share Sale: Singapore Mover[/h]<CITE class=byline>By Michelle Yun - Dec 5, 2012</CITE>
Olam International Ltd. (OLAM), the commodity trader that Muddy Waters LLC said may fail, slumped to the lowest in three and a half years in Singapore, after Michael Dee, a former senior managing director at Temasek Holdings Pte, called for the company to sell stock.
Shares in the world’s second-largest rice trader fell as much as 5.9 percent before trading 5 percent lower at S$1.44, set for the lowest close since April 1, 2009, as of 12:15 p.m. local time. Dee said Olam’s Temasek-backed debt and warrant sale announced this week is an expensive way to raise money.
“Olam made a strategic error in saying equity was not needed until 2015. It needs equity now,’” said Dee, who worked at Temasek from 2008 to 2010, in an article published inSingapore’s Business Times newspaper. Dee joined Temasek after serving as the Southeast Asia chief executive officer for Morgan Stanley.
Olam, also one of the three largest coffee traders, announced the sale of as much as $1.25 billion of bonds and warrants to existing shareholders this week. The offer will address “lingering doubts,” according to Olam CEO Sunny Verghese, which was sparked by Muddy Waters claim that the company is at risk of collapse.
“The latest Temasek-backed transaction raises significant issues, as it is extremely expensive debt and equity capital, capital that Olam spent a week telling the market it didn’t need,” said Dee. “Muddy Waters is not the issue here, it is Olam’s strategic and financial decisions that have brought this situation to a head.”
[h=2]Bond Offer[/h]The company will offer $750 million in bonds and as much as $500 million in warrants and Temasek agreed to buy any rights not taken up by other investors, Olam said. Temasek, which holds 16 percent of Olam according to data compiled by Bloomberg,“made its own independent assessment” before deciding to back the sale, it said in a separate statement on Dec. 4.
“It’s definitely expensive debt to raise,” said Vincent Fernando, an analyst at Religare Capital Markets in Singapore.“It sort of highlighted fears that were raised by Muddy Waters in terms of the company needing capital. A few days before it seems like the company indicated it was not needed. I think this is where it has backfired a bit.”
Olam has enough capital for the next 12 to 18 months even if it’s unable to raise money from the capital markets, Anantharaman Shekhar, an executive director at Olam, said Nov. 28.

 

[Confuseous]

Re: Olam

What price to nibble for a trade?

If you are able to find scrip (or naked short), the next support level is $1-12 and if this breaks, it will go down to 86 cents, last seen in December 2008.
Technically, indicators were already heading south in the 3rd week of October, before the muddy waters surfaced - so the muddy block report was not entirely to 'blame' for the stock's current situation.

This is not a buy or a sell recommendation - just sharing, and I am not vested.

 

[Zatoichi]

Re: Olam

Question is whether Olam management is going to sit quiet as the stock plunges...

Question is what TEMASEK will do! LOL

...86 cents, last seen in December 2008.

I bet below that price level is where Temasek is patiently waiting to GOBBLE up Olam! LOL

 

[Millennium Falcon]

I like LOSER stocks. LOL

 

[Seee3]

Re: Olam

Question is what TEMASEK will do! LOL



I bet below that price level is where Temasek is patiently waiting to GOBBLE up Olam! LOL

This is what I thought too. However, what puzzled me is not what Temasek will do but rather what Temasek CAN do after taking over. Not sure if it is worth the price. Looking at their record, I believe they will swallow it eventually and lose more.