Dec 4, 2012

Singapore - Olam shares surge on bonds issue plan

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SINGAPORE: Shares in farm commodities supplier Olam surged Tuesday after announced a US$1.25 billion bond issue, but US-based short seller Muddy Waters warned the move would only postpone its collapse.

Olam soared as high as 8.6 per cent in the morning session at the Singapore Exchange after it announced the rights issue, which is fully backed by its second-biggest shareholder, Singapore's Temasek Holdings. In early afternoon trade they had eased to sit up 3.5 per cent at S$1.63.

The issue will comprise US$750 million in bonds, and warrants of up to $500 million and comes after Muddy Waters warned about the Singapore-listed firm's future last month.

"We've obviously seen the stock come back on to the market today in a relatively positive reaction thus far," said Jason Hughes, head of premium client management for IG Markets Singapore.

However Muddy Waters said the move had actually raised the possibility the company "could have been only days away from collapsing".

"The US$750 million that Olam is raising merely postpones the collapse that we feel is almost inevitable," it said in a statement, noting that this was only a portion of the S$4.6 billion (US$3.8 billion) it needs to raise in the next 12 months to stay afloat.

"Olam's fundamental problem remains unchanged: the company has borrowed substantial amounts of money to fund capital projects that we believe are incapable of repaying the debt," it said.

Muddy Waters has questioned Olam's accounting practices, which it claimed masked its debts.

The US firm predicted it would fail like US energy trader Enron whose collapse in 2001 was triggered by US government probes into its accounting standards.

Olam chief executive Sunny Verghese on Monday insisted Olam is on a sound financial footing and the rights issue was meant to show investors the company can still access capital markets.

"We are doing this to demonstrate ... that we can access debt and capital markets at these rates today (and) we have a significant shareholder who is willing to backstop us and support us not with words but with action," he said.

But Hughes said the conflict between Olam and Muddy Waters was likely to continue for some time.

"I don't think its the last we've seen in this. The fact that we're potentially going down the court route in terms of allegations and counter-allegations... means it's going to be a long drawn out process," he said.

Olam last month filed a defamation suit against Muddy Waters in the Singapore High Court, with the US company threatening to counter-sue Verghese for alleging it was a front for hedge funds.

- AFP/ck

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