Muddy Waters letter blasts Olam debt

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, b) cumulative investment cash burn by approximately S$2 billion ($1.63 billion), and c) cumulative operating cash burn by approximately S$500 million, the letter says.

Olam has $4.125 billion of outstanding debt, including bonds and loans, according to Thomson Reuters CreditViews. The bulk of its bonds are held by retail investors who can be quick to unload paper, making for volatile prices.

Olam's bonds were trading steady on Wednesday, but caution was still in the air as prices are off the levels prevailing before the Muddy Waters allegations.

The bonds due in 2017 were last seen at 93-94.5 cents on the dollar and 2020s

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