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Singapore Daily Bulletin – 28/11/12

Muddy Waters Releases Much-Awaited Olam Report
The spat between Muddy Waters and Olam International is coming to a height after the short-seller released a 133-page much-awaited report, which gave the commodities trader a “Strong Sell” rating. Muddy Waters noted its main concern is not the significant non-cash earnings and high debt levels, but rather Olam’s aggressive accounting that masks poor performance and incentivises it to spend increasingly precious cash. Specifically, Olam’s capex projects were highlighted as its fatal flaw and were akin to a fiscal black hole. Also, Muddy Waters is not convinced in “gestation period” and feared that “Olam seemed to be falling into the same accounting gain – capex vicious cycle that ensnared US trader Enron”. On the other end, Olam hit back with a 45-page rebuttal, noting that it faces no risk of insolvency and has “sufficient liquidity” to fund its current business and future investment plans. It reiterated that its accounting practices strictly adhered to Singapore’s rules, defended its business model and acquisition strategy, and called Muddy Waters’ assertions being motivated by potential benefits from shorting.

Significance: Following release of the “Strong Sell” report, Olam opened at $1.48 – down 5.1 percent compared to yesterday’s close of $1.56. Though it has partially recovered to $1.53 at the time of writing, this is barely above its 52-week low of $1.525.

SingXpress Land Receives Mandatory Cash Offer After Preference Shares Conversion
SingXpress Land has received a mandatory cash offer, following Haiyi Holdings’ decision to convert all its cumulative non-redeemable convertible non-voting perpetual preference shares (NRCCPS) into ordinary shares. The decision resulted in Haiyi holding a 62.17 percent stake on an enlarged basis, leading it to make a mandatory unconditional cash offer at $0.0118 per share. The offer price is at a 21.3 percent discount to SingXpress’ last traded price of $0.015 yesterday and also at a 19.7 percent discount to SingXpress’ volume-weighted average price for the past six months.

Significance: The conversion comes barely four months after Haiyi’s subscribe to 80 units of NRCCPS issued by SingExpress, which at that time called it a “taking a quantum leap in the execution of its investment approach to property. Notably, SingXpress’ Hong Kong parent Xpress Credit, which holds 19.73 percent stake on an enlarged basis, has irrevocably undertaken not to accept the offer.

Straits Trading Surges On Hospitality Alliance And Possible WBL Offer
Straits Trading saw its shares surged $0.28 or 8.75 percent to close at $3.48 yesterday. Not only did the company received a boost from its planned hospitality alliance with members of the Far East Organisation, interest was further heightened following announcement of a possible WBL general offer. Specifically, Straits Trading had entered separate conditional agreements to purchase 20.3 million shares in WBL from Aberdeen Asset Management Asia and 43.7 million shares from Third Avenue Management. Consideration of the purchase involves issuance of 68.5 million new shares to the two sellers, based on a ratio of 1.07 shares for every one WBL share. This will push the combined holdings of the company, together with parties acting in concert, to 120.86 million shares or 44.6 percent. This will trigger a general offer, which the company will offer 1.07 new shares for each WBL share or $3.41 in cash.

Significance: Kim Eng opines that the possible WBL offer is at low-ball number as focus was to acquire shares in the two funds, which have already agreed to a share swap. Nonetheless, AM Fraser highlighted that WBL holds distribution rights of 11 premium brands in various Asia countries and this will be positive in restructuring of technology division.