Olam shares tumble as market thumbs down bond issue

Farm commodities supplier Olam's shares tumbled sharply Wednesday as investors thumbed down its move to tap the capital markets amid claims by an influential US-based short-seller it was in danger of collapse.

Olam shares fell by as much as 6.9 percent in intra-day trade before closing at Sg$1.515 apiece at the Singapore Exchange, down 5.3 percent, despite the Straits Times Index rising 0.45 percent.

Olam stocks are down by 13 percent since short-seller Carson Block first made the allegations that Olam had a high risk of solvency on November 19.

Block's research firm Muddy Waters followed up with a scathing 133-page report criticising Olam's accounting practices which allegedly masked its debts.

Olam issued a 45-page rebuttal and a defamation suit against Muddy Waters followed by an acrimonious war of words between the two parties.

On Monday, Olam announced plans to raise up to $1.25 billion in a capital rights issue which had the backing of its second-largest shareholder, Singapore's powerful state investment firm Temasek Holdings.

The rights issue will comprise of $750 million in bonds and warrants of up to $500 million.

Olam shares soared Tuesday but the rally petered out on Wednesday as Muddy Waters insisted that the rights issue validated its allegations that Olam was not on sound financial footing and could collapse.

Weiming Yang, premium client manager at IG Markets Singapore, said Olam shares plummeted "as investors gave a thumbs-down to its latest fundraising plans".

Olam chief executive Sunny Verghese has said the rights issue was meant to show investors that the company can still raise funds in the capital markets despite the Muddy Waters allegations.

"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," he said on Monday.

But Muddy Waters had said that "Olam's fundamental problem remains unchanged: the company has borrowed substantial amounts of money to fund capital projects that we believe are incapable of repaying the debt".

The US firm has predicted Olam would fail like US energy trader Enron, whose collapse in 2001 was triggered by US government probes into its accounting standards.

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