Olam says banks raised no credit concerns in Temasek talks

PUBLISHED : Wednesday, 05 December, 2012, 10:53am
UPDATED : Wednesday, 05 December, 2012, 10:53am

Olam International, the commodity trader that Muddy Waters LLC said is in danger of failing, said banks hired to help sell US$1.25 billion in bonds and warrants didn’t raise concerns about its credit position in discussions with shareholder Temasek Holdings.

Credit Suisse Group, DBS Bank, HSBC Holdings and JPMorgan Chase “confirm that there was no mention of any concern regarding Olam’s credit position in their discussions with Temasek,” which is supporting the raising, Singapore-based Olam said in a statement on its website.

Olam, the world’s second-largest rice trader, and Carson Block’s Muddy Waters have engaged in a war of words since 36-year-old Block said last month he was selling Olam shares short -- borrowing them to profit by buying them at a lower price later -- because he expected the company to fail due to mounting debts.

Olam chief executive Sunny Verghese, who sued the research firm and Block on November 21, described the sale as a vote of confidence from Temasek.

The Singapore-based trader rejected a theory by Muddy Waters that the banks may have refused to lend more money to the company if Temasek didn’t provide additional support. Temasek, Olam’s second-largest shareholder, “made its own independent assessment” before deciding to back the sale of bonds and warrants, the company said.

Olam’s US$500 million, 5.75 per cent notes due September 2017 were little changed at 87.5 cents on the dollar at 9:21 a.m. Sydney time, from a record low close of 83.5 cents reached November 30, according to BNP Paribas SA.

The bonds were quoted at 97 cents on the dollar Nov. 19, the day Block first made his allegations. Olam’s planned sale of bonds, announced on Monday, would be its largest public issue to date, according to data compiled by Bloomberg.

Its shares rose 1.6 per cent to S$1.60 at the close of trading in Singapore on Tuesday, the highest since November 26.
Olam, also one of the three largest coffee traders, said Temasek would buy any bonds or warrants not sold in an offering underwritten by Credit Suisse, DBS Bank, HSBC and JPMorgan.

The inclusion of Singapore state-owned investment company Temasek in the sale was “aimed at reducing uncertainty about Olam in both the bond and equity markets,” according to the December 3 statement.

Temasek’s support for the debt offer amounted to a temporary bailout by the Singaporean investment company, Block said on Tuesday in an interview on CNBC.

“This would be a situation where Temasek had to choose between bad and worse,” Block said, adding Olam probably had six to eight months before failing due to its unsustainable debt position and cash burn.

In a 133-page report last week, Muddy Waters said that Olam was “likely to fail,” citing a number of “accounting gaffes” and would need to raise or refinance as much as S$4.6 billion (US$3.78 billion) of debt during the next year to remain solvent.

Block, research director of Los Angeles-based Muddy Waters, has successfully bet against Chinese companies that trade in North America after raising doubts about their accounts. One target, tree-plantation operator Sino-Forest Corp., slumped 74 per cent before eventually filing for bankruptcy protection in March.

The short seller profited from taking a short position in Sino-Forest, based in Hong Kong and Mississauga, Ontario, by selling borrowed shares and buying them back at a lower price.

Olam was founded in 1989 in Nigeria by the Kewalram Chanrai Group as an export company to secure foreign currency, according to Olam’s website. Kewalram Singapore Ltd. is Olam’s top shareholder with a 20 percent stake, according to data compiled by Bloomberg.