Rice trader Olam International fights back over Muddy Waters' claims
Rice trader launches aggressive market drive to counter charges that the company will collapse
Olam International, whose shares have fallen 9.5 per cent since short seller Carson Block said it might fail, has sued him for defamation. He responded with a 133-page report that called the commodity trader an emperor with no clothes.
"The fight's not just in the courtroom, which may take a long time to play out," said Nicholas Hanna, a lawyer at Watson Farley & Williams. "The immediate fight is who wins over the market."
Olam has replied more aggressively to Block and his Los Angeles-based research firm Muddy Waters than their previous targets. Besides the lawsuit, the company has rebutted allegations of accounting flaws in a 45-page response and held several meetings with investors, analysts and the media. Its shares have regained ground after falling 21 per cent in US trading the day of Block's first comments.
"The frustrating thing in this whole exercise is that when you throw so much mud, something will stick," said Olam's chief executive Sunny Verghese, who bought one million Olam shares on November 30.
The company will offer US$750 million in bonds and up to US$500 million in warrants to existing shareholders in a bid to reassure investors, it said yesterday in a statement after halting its stock. Its second-biggest shareholder, Singapore's state-owned investment company Temasek Holdings, has agreed to buy any rights not taken up by other shareholders, Olam said.
The transaction will be aimed mainly at repaying borrowings and will address any "lingering doubts" about Olam's liquidity, Verghese said.
Block said after issuing his report on the world's second-largest rice trader that Muddy Waters prepared to litigate all its reports. "If we have to defend it in court, then we'll defend it in court," he said. "It's the nature of the game."
Verghese said last week that Olam would take all legal steps to get redress, noting that might require getting hold of hedge funds he believed were behind Block and Muddy Waters. Muddy Waters said it was not working in concert with hedge funds and demanded Verghese retract and apologise for the comments.
Block's first comments against Olam in London were slanderous, libellous and malicious falsehoods, Olam said in a lawsuit filed on November 21 at Singapore's High Court.
Even serving the lawsuit on Block and Muddy Waters would take time as they are not in Singapore, and should Olam eventually win its case, enforcing a judgment in the US will be difficult because of its free-speech protection laws, according to David Tan, an associate professor at the National University of Singapore's law faculty.