Global farm commodities supplier Olam International on Wednesday sued a US-based research firm and its founder for saying the company was in danger of collapse.
In a filing with the Singapore Exchange after trading closed for the day, Olam said it "today initiated legal action in the High Court of Singapore against both Muddy Waters LLC and Carson Block".
"The grounds are basically slander, libel and/or malicious falsehood," Aditya Renjen, Olam's general manager for investor relations, told AFP. He declined to respond when asked if Olam was seeking damages.
In an emailed reply to AFP about the lawsuit, a Muddy Waters spokesman said: "Should we have to defend ourselves, we will do so vigorously."
Block, the founder of Muddy Waters and an influential short-seller, told an investment conference in London on Monday that Singapore-based Olam could collapse due to its debt load and other factors.
This sparked a 7.5 percent plunge in the value of the firm's shares on Tuesday but the stock recovered on Wednesday, rising more than five percent to close at Sg$1.6950 in heavy trading.
As the shares recovered, Muddy Waters issued an open letter to Olam chief executive Sunny Verghese and his board, after they threatened legal action and accused the US firm of deliberately sowing panic among investors.
"Olam's disproportionate reaction is extraordinary in our experience," Muddy Waters said, adding that "you and your investors should note that attempting to silence critics is not a plan of corrective action".
Eugene Ng, an investment analyst at UOB Kay Hian Research, said the absence of a full report from Muddy Waters allayed investor panic nand allowed the stock to recover.
"Currently they only issued a letter to Olam and I guess after people have read the letter, they don't think it's anything substantial," he told AFP.
"So now, some of the panic and fear that was experienced by the market yesterday, I guess that has reversed and that's why probably (Olam stock) came back today," he told AFP.
Olam sources 44 products from 65 countries and supplies them to more than 11,600 customers. Key products include cocoa, coffee, cashew, sesame, rice, and cotton and wood products.
Singapore's state investment firm Temasek Holdings is one of Olam's biggest shareholders, owning 16 percent as of March 31.
Block's assessments of companies have been closely monitored, especially after Chinese timber supplier Sino-Forest Corp filed for bankruptcy protection after a 2011 Muddy Waters report questioned the value of its assets.
Olam listed in Singapore in 2005 and is one of the 40 largest companies on the city-state's index in terms of market capitalisation.
Olam was originally established in 1989 in Nigeria and began with the export of raw cashew nuts from Nigeria to India, the company website says.