Commodity trader fights back against short-seller
Muddy Waters, the well-known short-selling firm run by Carson Block, generated new headlines recently when it took another shot at commodity trader Olam.
The short-seller released a lengthy report that essentially said that the Singaporean company was possibly heading for an Enron-like crash. Muddy Waters earlier cast broad accusations, saying Olam may need to raise or refinance as much as $3.8 billion over the next year just to stay solvent. Not only was it short of cash, but it has been overaggressive in its accounting, especially its use of goodwill, the short seller charged.
The trading company has fought back in a detailed defense that rebuts the main points leveled by Muddy Waters, making clear that solvency is not an issue.
"We believe that the report's assertions are motivated to distract and create panic amongst our continuing shareholders, bond holders and creditors," Olam said in a statement.
The defense notes that the company had "readily marketable inventories" of $3.71 billion on Sept. 30, which will get converted into cash.
"Olam cites the opinion of Standard & Poor's on the 'exceptionally liquid' nature of agricultural inventories to bolster its claim," notes Breakingviews, which has a recommendation for the company. It suggest that "it may not hurt the company to liquidate some of this inventory at or near book value, just to show that it could survive an external liquidity freeze."
Jefferies was able to do this when it was attacked by credit rater Egan Jones.