Olam International's planned US$1.25 billion raising will only postpone the likely collapse of the commodity trader, according to Muddy Waters, the research firm led by short-seller Carson Block.
The sale of a record US$750 million in bonds and as much as $500 million of warrants announced on Monday "validates our thesis that Olam is in danger of failing", Muddy Waters said. The statement was in a response to the raising that's backed by Temasek Holdings, Singapore's state investment company.
Olam, the world's second-largest rice trader, and Muddy Waters have engaged in a public war of words since Block, a 36-year-old former lawyer, last month said he was selling Olam shares short.
Olam chief executive Sunny Verghese, who sued both the research firm and Block on November 21 in the Singapore High Court, described the sale as a vote of confidence from Temasek that demonstrated its ability to get funding.
"More than anything, this move is to give comfort to the market, to get that confidence back up," said Tanuj Shori, a Nomura Holdings analyst. "This issue may take time to resolve because it is too subjective."
Shares of Olam, also one of the world's three largest coffee traders, climbed up 8.6 per cent to S$1.71 (HK$10.88) in Singapore yesterday, trimming its decline since Block made his allegations on November 19.
The price of US$500 million of its 5.75 per cent bonds due in September 2017 dropped 2 US cents to 89 US cents on the dollar after rebounding 7.5 US cents yesterday, according to BNP Paribas prices.
The bonds closed at 97 US cents on November 19. The planned sale of bonds announced on Monday would be the company's largest such issue.
The debt sales raise questions over whether Olam was running short of cash in recent days, Muddy Waters said. Olam's associate general manager of investor relations Hung Hoeng Chow said she couldn't immediately comment on the allegation.
Temasek, Olam's second-largest shareholder, agreed to buy any of the US$1.25 billion in bonds and warrants not taken up by other investors. Credit Suisse, DBS Group Holdings, HSBC Holdings and JP Morgan Chase will underwrite the transaction in full, Olam said.
"This is a strong vote of confidence we are seeing from Temasek, our long-term strategic shareholder," Olam's Verghese said at a press conference in Singapore on Monday.
"This transaction also demonstrates the ability to access both debt and equity capital markets, even in current conditions."
The capital raising was also a "180-degree reversal" of Olam's earlier position on not raising more debt in the near future, Muddy Waters said. The agricultural commodities trader has six to eight months before failing due to its unsustainable debt position and cash burn, Block said in an interview on CNBC.
Olam will need about S$3.5 billion of fixed capital in the next four years, Verghese said.