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Monday 3 December 2012

Muddy Water: Before you beat a dog, find out who its master is.

Chinese saying: Before you beat a dog, find out who its master is.

Olam plans to raise US$1.25 billon in rights issue

SINGAPORE: Farm commodities supplier Olam said Monday it plans to raise up to US$1.25 billion in a capital rights issue as its stepped up efforts to fend off a relentless attack by US-based research firm Muddy Waters.

Temasek Holdings, which is the second biggest shareholder in Olam, fully backed the exercise, Olam International chief executive Sunny Verghese told a news conference.

The rights issue will comprise of US$750 million in bonds with a five-year maturity and a cash coupon rate of 6.75 per cent, and 387.4 million free detachable warrants worth up to US$500 million. The bonds will be priced at 95 per cent of the principal amount.

Olam said the proceeds will be used to repay debts and to fund working capital until early 2014, and that the rights issue will be fully underwritten by Credit Suisse, DBS, HSBC and JP Morgan.

It also added that the bonds and warrants should be launched on the market by the first week of March 2013, pending an extraordinary general meeting in either late January or February 2013.

Temasek "will undertake to subscribe" to its pro-rated entitlement of rights based on its 16 per cent stake in Olam, Verghese said.

Temasek has however committed to take 100 per cent of all issues not subscribed to by other shareholders, which would raise its stake to 29 per cent, he added.

Olam's latest move follows a withering attack by short-seller Carson Block and his research firm Muddy Waters which questioned the company's allegedly flawed accounting standards that they claimed masked its debts.

Muddy Waters has predicted the Singapore-listed firm will collapse like US energy trader Enron, whose spectacular fall in 2001 was triggered by US government probes into its accounting practices.

The attacks have sent Olam's shares plunging since Block first made the allegations at an investment conference in London on November 19.

Olam shares have recouped some losses but were still down 9.5 per cent from when the allegations were first made. Trading of the stock was suspended Monday pending the announcement.

The counter last traded at S$1.575 on Friday.

"We are not doing this for liquidity, we already have the liquidity," Verghese said Monday.

"We are doing this to demonstrate... that we can access debt and capital markets at these rates today (and) we have a significant shareholder who is willing to backstop us and support us not with words but with action."

Temasek's commitment "is a very strong, decisive action (for investors) not to have any worries about any of the allegations".

Verghese on Friday bought one million Olam shares in the open market as part of efforts to boost shareholders' confidence.

On Monday, Verghese also rejected a call by Muddy Waters to have Olam rated by credit risk evaluator Standard and Poor's.

"It is not unusual that companies in our space have remained unrated for a long time... To make it as if we are the only unrated company is therefore completely wrong," Vergehese said.

Following Carson's remarks in London, Muddy Waters also released a scathing 133-page report supporting its allegations.

Olam fired-back with a 45-page rebuttal and a defamation suit.

Verghese last week also accused Muddy Waters of being a front for some hedge funds to drive down Olam shares in the hope of profiting from it later.

Short-sellers borrow shares and sell them in the hope their price will drop. They can then buy the shares back at a cheaper price and profit from the difference.

Muddy Waters' assessments of companies have been closely monitored, especially after a report in 2011 forced Chinese timber supplier Sino-Forest Corp to file for bankruptcy protection.

- AFP/jc

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