Olam International, the commodity trader that Muddy Waters LLC said may fail, isn’t another Enron Corp., according to a former senior managing director at Temasek Holdings.
“I completely reject” the Enron comparison made by Muddy Waters, Michael Dee, who worked at Temasek from 2008 to 2010, said in an interview with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” Olam is “a company that saw a tremendous business opportunity, to take an existing platform and grow it on the back of relatively inexpensive debt. And perhaps executed that a little bit too fast and too far.”
Shares in Olam, the world’s second-largest rice trader, have slumped 16% since Muddy Waters’s founder Carson Block first made his allegations on Nov. 19. Olam has responded with a lawsuit against the research firm and Block, and a plan to sell as much as $1.25 billion of bonds and warrants to address “lingering doubts,” according to Olam Chief Executive Officer Sunny Verghese.
“In the short term, they need to delever the company,” Dee said. “I do think that is doable and is not overly difficult.”
The stock rose 1% to $1.465 as of 9:50 a.m in Singapore, compared with the 0.8% gain in the benchmark Straits Times index. Its US$500 million ($611 million) of 5.75% notes due September 2017 were quoted at 87.2 cents on the dollar as of 9:53 a.m., up from 86.7 cents yesterday, according to Bloomberg prices.
BONDS AND WARRANTS
Olam announced this week it will offer US$750 million in bonds and as much as US$500 million in warrants to existing shareholders, and Temasek, its second-largest shareholder, agreed to buy any rights not taken up by other investors. Temasek holds a 16% stake in Olam, according to data compiled by Bloomberg.
“Excluding the costs of the warrants attached to the bonds, the yield will be about 13% instead of the 8% that Olam would like investors to believe,” Dee said yesterday in a separate interview. “The market place hasn’t really understood what the real costs for the company are.”
As part of a 10-point plan for Olam in an article in Singapore’s Business Times newspaper yesterday, Dee called for the company to sell stock instead of issuing bonds, saying “the supply of cheap debt is over.” In the interview today, Dee reiterated that Olam needs to reduce debt, “take a breather from rapid expansion” and be more transparent.