Wednesday, November 28, 2012


Olam: UBS gives its take on Muddy waters view. House note that many of the allegations are known to credit investors including the highly leveraged balance sheet, the significant capex commitment and refinancing needs. House has always adjusted to exclude biological gains from net profits on an unadjusted basis. Moreover, per the co's statement released last wk, the accounting treatment of both biological gains and negative goodwill follows the requirements of SFRS. The standard applied to biological gains is also followed by other listed companies which have similar asset type. Hence, don’t consider these allegations as new. Some additional allegations include the lack of clarity on capex announced and spent, the maneuver of margin accounts, and underperforming assets from acquisitions. While some issues would require further clarifications from management, the co has been upfront about its capex plan for the next few yrs and stressed that free cashflow will remain negative (i.e., cashflow returns will likely be slow). The speed of cash burn and returns on those investment/capex are however worth a closer monitoring and investors will likely demand more and better disclosure on this going forward. The company has $3.8bln of debt (73% are bank loans) coming due in the next 12mths, as disclosed in the co's quarterly financial statement. This raises refinancing risk but cash on hand of $1.4b and RMI (readily marketable inventory) of $3.7bln should provide some liquidity buffer.

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