Olam: ***WARNING***

Olam: ***WARNING - Strong negative sentiment ahead, after its ADR’s plunged 21% overnight in the US, after renowned Short Seller Muddy Waters, led by Carson Block said he’s betting against the shares and questions the co’s accounting method. Olam fell 29c to US$1.10 (S$1.34) in OTC trading in New York. Muddy Waters alleged that Olam is booking profits on transactions before it’s clear how the deals will work out over time and is heavily indebted and aggressive in how it reports what the co’s calls biological gains on investments. Mr Block criticised the debt levels of the SG-listed co, saying that it had reacted to the 2008 crisis by deciding to take huge leverage and invest in illiquid positions. He also questioned Olam’s accounting practices, including the way it has booked profits on some of its acquisitions as well as its valuation of its plantations, crops and livestock. 'This is not a black box, this is a black hole,' Carson Block told the Ira Sohn investment conference in London, a charitable event attended by some of the European hedge fund industry’s biggest names. Meanwhile, Egerton Capital, one of the world’s top equity hedge funds also told the London Conference after Carson’s Block speech that they were short Olam and the position had been very profitable. In response, Olam’s CEO, Sunny Verghese described the attack on Olam as “baseless” and “rumour-mongering”. Feel that this is a great injustice being done to the co. and stakeholders. Add that Muddy Waters had not given Olam any opportunity to respond to its criticisms but Olam would respond in detail to every issue raised by the report. Also note that Olam had noticed a large increase in short positions in its shares in the past mth Recall 2 years ago, Olam shares plunged a good 10% in a single day of trading, after CLSA cited “significant differences” in Olam’s accounting statements and its Nigerian earnings. For a brief background on Muddy Waters, the Co. is a short-selling group that rose to prominence last year when one of its reports sparked a collapse in the share price of Sino-Forest, ending with the Chinese forestry company filing for bankruptcy protection in March. Other notable targets by the Co, includes Focus Media & New Oreidntal Education.