Muddy Waters stepped up its battle against Olam International Ltd with a letter criticising the Singapore commodities trader's debt and cash burn, while investors took the latest salvo in stride.
Shares of Olam rose as much as 5.6 percent on Wednesday, rebounding from a 7.5 percent fall the previous day. Olam bond prices briefly rose too, as traders and analysts said the letter was not as scathing as previous, formal research reports issued by the well-known short-seller.
The detailed report is still not out yet, said a Singapore trader about Olam's stock rebound. The trader was not authorised to speak publicly. It is unclear if Muddy Waters will publish a formal report on Olam or not.
The tussle began on Monday, when Muddy Waters founder Carson Block was speaking at a charity event in London. Block singled out Olam's accounting practices, saying his firm was unable to reconcile the company's capital expenditures with its announced projects, and questioned its prospects.
Muddy Waters, which makes money by betting against companies, has issued devastating reports in the last few years, mainly aimed at China-based companies. Some of the reports crushed shares of the targets, although others were able to recover.
Olam responded on Tuesday with a strong defence of its business, assuring that it could fund operations for 18 months even if it were shut out of the debt markets, and promising to consider share buybacks after the drop in its stock price.
Muddy Waters said in its letter, dated Nov. 20 and published on the research portion of its website, that the firm believed Olam would collapse.
Should Olam come to collapse (as we believe it will), its use of much-needed cash to buy back shares at this time should give rise to questions about whether fiduciary responsibilities have been breached, said the relatively brief letter, addressed to Olam's CEO and its board.
Olam did not have an immediate comment on the letter on Wednesday. On Tuesday, the company called Block's attack baseless and unsubstantiated.
DEBT, CASH BURN
This was not the first time accounting was questioned at Olam, which is 16 percent owned by Singapore state investor Temasek Holdings.
In February 2011, Olam denied there were inaccuracies in its accounts after a CLSA analyst raised concerns about internal controls, citing multiple and sometimes significant differences between Olam's audited and unaudited statements.
Muddy Waters cites the 2011 CLSA note in its letter.
Olam has since increased its a) debt load by approximately S$900 million,