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Muddy Water's success depends on a fast and sharp decline of Olam's price. Apparently, the management is not stupid. They are preparing liquidity to stop any short term plunge. In the longer term, it is more difficult for Muddy Water to win. It may eventually turn out that Olam is a fraud, but at that time, Muddy Water could have bankrupted already.

(04-12-2012, 01:12 PM)freedom Wrote: [ -> ]Muddy Water's success depends on a fast and sharp decline of Olam's price. Apparently, the management is not stupid. They are preparing liquidity to stop any short term plunge. In the longer term, it is more difficult for Muddy Water to win. It may eventually turn out that Olam is a fraud, but at that time, Muddy Water could have bankrupted already.

Don't be too quick to write off MW. i gave credit for these specialist shortsellers. they are experts in this kind of game with deep pockets too. after so many tryst with other companies a certain pattern would have emerge. it is std human behaviour when under threat. try this:

1. after picking a target they started short selling. the price keeps on plunging without anybody knowing why.
2. then they come out and declared that their target is either a fraud or high risk of bankrupt.
3. first mkt reaction is that price plunges further.at this point they would be short covering already and wait for management's fierce response. make 1 round of money already
4. depending on what kind of response, price would have climb and on how high the price climbs, go on short selling again.believe Olam is this stage.
5. wait for the price to capitulate and then short cover again.bingo and they make tons of money

(04-12-2012, 12:15 PM)d.o.g. Wrote: [ -> ]

CityFarmer Wrote:Readily Marketable Inventories (RMI) or Liquid Hedged Inventories (LHI) is one key argument from Olam on its solvency issue.

The Muddy Waters report points out that even if Olam is hedged when viewed from a consolidated viewpoint, the assets and liabilities do not necessarily match at each underlying entity. The physical inventories are held by the operating subsidiaries, but the offsetting/hedging contracts may be held by a different company. This creates a nightmare in a liquidation because there are so many companies in so many different countries. Think about what happened at AIG. AIGFP sold all sorts of insurance products and eventually caused the meltdown. But the underlying operating subsidiaries were perfectly sound. The same (or reverse) could be true at Olam.

If one cannot avoid this type of asset/liability mismatch, the sensible thing to do is to keep a strong liquidity buffer to avoid liquidation risk. But Olam cannot keep a strong liquidity buffer because its margins are so low - it needs high gearing to produce an acceptable return on equity. So Olam's business lives on a knife-edge. Investors who are willing to accept such risks should demand a commensurately high return i.e. the stock price should be very low in P/B and P/E terms to compensate for the very real risk of 100% loss.

There are doubts on the readiness (or liquidity as highlighted by d.o.g) and worthiness of the LHI. The doubts is costly for management, but may be lucrative for investor who have a clear picture of operation and cash-rich enough to bet on it.

(04-12-2012, 12:50 PM)wee Wrote: [ -> ]In AIG's case, the operating assets of the subsidiaries aren't really as liquid and readily marketable as the commodities that Olam has? Furthermore, subsidiaries of AIG are generally regulated and hence the assets can't be easily transferred or liquidated. While I would agree that the mismatch in the entities holding the assets vs the entities needed the cash may be an issue for Olam, I won't necessarily paint them in the same brush as AIG during GFC.

The intention of the analogy was to draw attention to the asset-liability mismatch.

Of course, the AIG operating subsidiaries differed in important ways from Olam's subsidiaries:

1. The AIG subsidiaries were independently operated, heavily regulated, well capitalized and profitable; and

2. They were desirable assets for others to own, as shown by the sale of American Life Insurance to Metlife and the successful IPO of AIA

Olam's operating subsidiaries have essentially no value outside of Olam. It's like trying to use a car's parts separately - the engine, wheels, body etc have no functional use on their own, they have to be combined to be useful. The standalone operations (farms, processing factories) do have an independent value, though Muddy Waters' work suggests the value assigned to them by Olam is also inflated.

For Olam's commodities, most of the time they are sitting in a warehouse or silo in Africa, or on a ship enroute to a customer. These commodities are readily marketable only when you actually deliver at the time and place specified. It takes time and money to move commodities, and along the way spoilage and theft will take their toll.

The only way you can expect to sell a commodity futures contract and deliver against it with no loss is if you already own the commodity at the location specified in the contract e.g. you trade copper futures in London, and you already have a pile of copper sitting in a LME warehouse. This isn't to say that hedging with futures is useless, just that it is not a perfect hedge because of logistics costs.

In any case, for many of Olam's products, no futures markets exist. Coffee and cotton, sure. Cashews and almonds? Dream on. Sure, it can execute fixed-price contracts, but it has already suffered defaults by both suppliers and customers alike, so clearly Olam is taking a lot of counterparty risk. It is fundamentally a high-risk, low-return business, which raises the question of how any intelligent investor could possibly be interested, except at a very low price.

oh! does it meant that temasick... "opppsss i did it again?!!" :O

Olam shares surge on bonds issue plan
04 December 2012 1310 hrs (SST)
http://www.channelnewsasia.com/stories/a...79/1/.html

SINGAPORE: Shares in farm commodities supplier Olam surged Tuesday after announced a US$1.25 billion bond issue, but US-based short seller Muddy Waters warned the move would only postpone its collapse.

Olam soared as high as 8.6 per cent in the morning session at the Singapore Exchange after it announced the rights issue, which is fully backed by its second-biggest shareholder, Singapore's Temasek Holdings. In early afternoon trade they had eased to sit up 3.5 per cent at S$1.63.

The issue will comprise US$750 million in bonds, and warrants of up to $500 million and comes after Muddy Waters warned about the Singapore-listed firm's future last month.

"We've obviously seen the stock come back on to the market today in a relatively positive reaction thus far," said Jason Hughes, head of premium client management for IG Markets Singapore.

However Muddy Waters said the move had actually raised the possibility the company "could have been only days away from collapsing".

"The US$750 million that Olam is raising merely postpones the collapse that we feel is almost inevitable," it said in a statement, noting that this was only a portion of the S$4.6 billion (US$3.8 billion) it needs to raise in the next 12 months to stay afloat.

"Olam's fundamental problem remains unchanged: the company has borrowed substantial amounts of money to fund capital projects that we believe are incapable of repaying the debt," it said.

Muddy Waters has questioned Olam's accounting practices, which it claimed masked its debts.

The US firm predicted it would fail like US energy trader Enron whose collapse in 2001 was triggered by US government probes into its accounting standards.

Olam chief executive Sunny Verghese on Monday insisted Olam is on a sound financial footing and the rights issue was meant to show investors the company can still access capital markets.

"We are doing this to demonstrate ... that we can access debt and capital markets at these rates today (and) we have a significant shareholder who is willing to backstop us and support us not with words but with action," he said.

But Hughes said the conflict between Olam and Muddy Waters was likely to continue for some time.

"I don't think its the last we've seen in this. The fact that we're potentially going down the court route in terms of allegations and counter-allegations... means it's going to be a long drawn out process," he said.

Olam last month filed a defamation suit against Muddy Waters in the Singapore High Court, with the US company threatening to counter-sue Verghese for alleging it was a front for hedge funds.

- AFP/ck

(04-12-2012, 01:56 PM)Jacmar Wrote: [ -> ]

(04-12-2012, 01:12 PM)freedom Wrote: [ -> ]Muddy Water's success depends on a fast and sharp decline of Olam's price. Apparently, the management is not stupid. They are preparing liquidity to stop any short term plunge. In the longer term, it is more difficult for Muddy Water to win. It may eventually turn out that Olam is a fraud, but at that time, Muddy Water could have bankrupted already.

Don't be too quick to write off MW. i gave credit for these specialist shortsellers. they are experts in this kind of game with deep pockets too. after so many tryst with other companies a certain pattern would have emerge. it is std human behaviour when under threat. try this:

1. after picking a target they started short selling. the price keeps on plunging without anybody knowing why.
2. then they come out and declared that their target is either a fraud or high risk of bankrupt.
3. first mkt reaction is that price plunges further.at this point they would be short covering already and wait for management's fierce response. make 1 round of money already
4. depending on what kind of response, price would have climb and on how high the price climbs, go on short selling again.believe Olam is this stage.
5. wait for the price to capitulate and then short cover again.bingo and they make tons of money

I tent to agree with Jacmar.

Never underestimate the skill of the specialist shortsellers, especially from us as amateur

The saga might not necessary end here...

no smoke w/o fire.

frankly this action by Olam is a bit puzzling. From no need to raise $ to a sudden bond + warrant issue that effectively borrows money at 10+ pct (8 pct bond + the warrants are NOT free). Temasek is probably trying to protect their investment I'm sure but they won't throw too much good money after bad IMO.

i'm vested (small) in short Olam equity so I guess my impartiality is questionable but I think MW has a decent story to spin => a damn sight more detailed analysis than those so-called analysts who have been covering Olam on the buy side!

Not ending yet.

http://www.muddywatersresearch.com/wp-co...042012.pdf

hi people, is the currently listed bonds and preference shares of olam only eligible to institutional investors?

I have tried searching for them on my iocbc platform, cant find them