Olam International Ltd, the agricultural commodities trader part owned by Singapore’s state-owned investment company, plunged the most in four years in US trading after short-seller Carson Block of research firm Muddy Waters LLC questioned the company’s accounting methods.
The supplier of 20 goods from cocoa to rubber halted its stock in Singapore yesterday, after falling 21 percent in over-the-counter trading in New York on Monday, according to data compiled by Bloomberg.
The company is booking profits on transactions before it is clear how the deals will work out over time, Block said, who also said he is betting against the stock.
Olam is “dismayed at the nature and lack of substance” of the comments, chief executive officer Sunny Verghese said in an e-mailed statement, adding that he was not contacted before by Block or Muddy Waters.
Verghese said he was waiting for a report from Muddy Waters and “will strongly defend Olam’s excellent reputation for transparency and good governance.”
Block, 36, has successfully bet against Chinese companies that trade in North America after questioning their accounting methods. One target, tree-plantation operator Sino-Forest Corp (嘉漢林業), slumped 74 percent before eventually filing for bankruptcy protection in March last year.
Singapore-based Olam, which handles more than 90 percent of world trade in peanuts and is one of the top six cotton traders, is “heavily” indebted and aggressive in how it reports what the company calls biological gains on investments, Block told the Ira Sohn Investment Conference in London.
Olam will fail and recoveries for investors will be “negligible,” Block said.
“It’s a leap of faith to think the company is being honest with its valuation” gains, he said.
The company dropped 0.9 percent in Singapore on Monday to S$1.74 before the US$0.29 plunge to US$1.10 in New York. It has fallen 18 percent in Singapore this year compared with a 12 percent gain in the benchmark Straits Times Index.
“While the accusations are serious, we believe Block’s argument is inconsistent as the group will not fail even if the entire value of its biological assets is written off,” UOB-Kay Hian Holdings Ltd (大華繼顯控股) analyst Eugene Ng said in an e-mailed note. “The stock is likely to see near-term impact from this piece of news and could trade lower toward its net asset value of S$1.35 before more clarity emerges.”
Other companies targeted by Muddy Waters include Focus Media Holding Ltd (分眾傳媒). In February, Muddy Waters issued its fifth report on the firm, claiming the Chinese advertising company overstated its network.