Olam International has once again come under fire from advisory group Muddy Waters after the commodity company obtained a combined bond and warrant issue to the value of US$750m.
Muddy Waters has criticised Olam’s accounting practices and warned investors the company could be “days from collapse”. Muddy Waters said Olam’s capital expenditure levels are out of control, with excessive borrowings used to fund a series of acquisitions in recent years. According to Muddy Waters, the company is struggling to generate the cash flows necessary to service its debt.
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With Olam’s share price under pressure, Singapore state investment agency Temasek stepped in to ensure that the company was able to obtain further funds. Temasek backstoped a combined bond and warrant issue designed to ease short-term concerns over the company’s liquidity.
However, Muddy Waters remained unconvinced. “We are intrigued by the possibility that Olam could have been only days away from collapsing. We theorise that Olam’s banks told Temasek they would turn off the taps unless Temasek provided additional financing to the company,” Muddy Waters suggested in a note issued earlier this week (4 December). “If we are correct, this financing is anything but an expression of confidence.”
For its part, Olam has launched legal action against Muddy Waters and chief executive Sunny Verghese has been outspoken in his criticism of the research firm.
In spite of the injection of funds, Olam’s share price continued to slide today, dropping 4.29% today to S$1.45 (US$1.19) on concerns that the company could fail.
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