According to Mr. Block, Olam is too aggressive in booking future so-called biological gains, the recording of future gains from plantations and dairy farms. Block even said that Olam would needs about US$3 billion to stay afloat and Muddy Waters is so confident of its assessment that it even offered to pay to have Olam’s debt rated by a debt company. Olam has rejected the offer and been fighting back, planning to raise US$1.25 billion to allay fears about its balance sheet and to shore up the confidence of its investors.
The spat between the two parties has a national turn in
because Temasek Holdings owns 16% of Olam and has publicly backed Olam's plan
to raise cash. So the question asked by a lot of Singaporeans is whether
Temasek is making a mistake by backing Olam so publicly and whether Muddy
Waters is on to something?
The answer I believed is mixed. Muddy Waters is probably correct in its assessment that Olam has been too aggressive in booking future biological gains, and it is also probably correct in its assessment of Olam’s debt. Muddy Waters is probably correct…and it does not matter.
The problem for Muddy Waters is the simple fact that in the
context, what Olam has done isn’t all that unusual. In fact, the argument they
have against Olam isn’t new. Most commodities companies in Singapore don’t
have a debt rating and the issue raised by Muddy Waters against Olam isn’t
unknown. Many people in the financial industry had said much the same things as
Muddy Waters had.
Having said that however, what Olam is doing is…well, normal industrial practice here in
It’s small wonder that Olam chief executive, Mr. Sunny Verghese, believe that
they had done nothing wrong. In Singapore,
what Olam has done isn’t uncommon, it’s practically normal.