Olam better be sure that Muddy is wrong because if it becomes a court case, everything that Olam does would be put up for everyone to see, assuming Muddy accept the challenge and put up a fight to defend itself. I am very sure this would be a story that world reporters would greatly seek after.
temasek is very powerful. never under-estimate as the other counter - hyflux also shares similar financial characteristics.
(21-11-2012, 10:40 PM)brattzz Wrote: [ -> ]with temasick backing OLAM, credit no problem lah!
Unless temasek does not want to, look out for what temasick do or don't do for next 6 to 12 months... :O
(22-11-2012, 09:42 AM)dzwm87 Wrote: [ -> ]...
Orient Paper: -76%
RINO Intl: -99%
China MediaExpress Hldgs: Delisted?
Duoyuan Global Water: -96%
Sino-Forest: Trading Halt
Spreadtrum Comms: +48%
Focus Media: -3%
Fushi Copperweld: +52%
New Oriental Edu: +34%
Olam Intl (ADR): -5%
-
Note the returns are back of envelope calculations, I won't say this "study" is perfect but seem like Carson was less "effective" post the Sino-Forest incident. Prior to Sino-Forest, he was indeed deadly!
To generalize a bit:
Shorting was indeed a very profitable strategy, when the market crashed until the end of 2011. When the markets don't happen to crash, shortin in general is not that profitable.
It doesn't have anything to do with mr. Block. His business and brand are all about shorting, whether the market is rotten or not. He doesn't time - he shorts. Or to be more specific, he sells tales to people who are about to short.
It is a tricky question whether Olam is a fraud. I am pretty sure that it will be a fraud case if Olam fails because of allegation from Muddy Water. At least if happens in US, easily there will be class action awaiting for Olam management.(Does Singapore have class action?)
But with all interests involved, it is unlikely that Olam fails because of report from Muddy Water. The creditors and certain investors will try to calm the market and protect their interests. So long as Olam passes through this difficult time, it can survive with the support from the creditors and certain investors(such as Temasek).
Just like a bad-run bank, as long as it can continue to get deposits and make loans, it can survive for a long time with its profit from making loans with no bank-run.
If their creditors begin to scrutinize its risk profile then life can be difficult for them, Temasek is only a passive investor and unlikely would stand as guarantor for Olam, for sure.
(24-11-2012, 08:00 AM)cfa Wrote: [ -> ]If their creditors begin to scrutinize its risk profile then life can be difficult for them, Temasek is only a passive investor and unlikely would stand as guarantor for Olam, for sure.
The capital cost may increase due to higher risk after the risk profile review.
Operation as normal and continue to get support from credit market should be no problem, but capital cost may be impacted IMO
Believe big institution funds will avoid this counter for the time being, there are many other better stocks around .
This appeared in the papers today. Anyone can explain why 'bilateral bank relations and syndicated bank loans' make Olam's debt less risky?
Also, I think the debt level is one side of the issue, one of the issues that Muddy Waters had with Olam is the recognition of future economic benefits from biological assets which may be allowed by financial reporting standards but honestly, how much do auditors really know about agriculture?
Olam not risky, despite the high debts
Short-seller who sowed panic with his claims gave no insight, say analysts
By Goh Eng Yeow Senior Correspondent
OLAM International just had the week from hell.
The firm had been minding its own business when it was attacked by Mr Carson Block, a prominent United States short-seller.
He reportedly accused Olam of aggressive revenue recognition and said it was likely to fail under the strain of excessive debts.
The company fought back vigorously, but its share price took a battering.
Within hours of Mr Block's attack at a hedge fund conference in London on Monday, Olam's price plunged by 17 per cent on over-the-counter trades in New York.
True, Olam runs a highly complex business operation spanning 65 countries and multiple commodities from cotton to cocoa. It is also ambitious, and is on a big investment frenzy, acquiring projects in farming and food processing.
This allowed Mr Block to play his cards well in highlighting the vulnerability in such complexities.
Still, the Achilles heel would appear to be the firm's S$8.4 billion in short and long-term debts.
But Olam chief executive Sunny Verghese was quick to stress that the company has a significant amount of un-utilised banking facilities. He said: "If the bank market was shut out to us, we would have adequate support to support our growth plan for at least the next 18 months."
CLSA, which did a breakdown of Olam's outstanding borrowings, noted that only 26 per cent is based on bilateral bank relationships, while 14 per cent is made up of secured bonds, another 21 per cent in medium-term notes and 39 per cent in bank syndication loans.
Its conclusion: Yes, Olam's debt level is high, but it is not risky.
Citi Investment Research analyst Patrick Yau noted that Olam is relatively well-capitalised, as it had already raised S$1 billion in equity and perpetual securities in the past two years.
"Given attractive debt markets, Olam has raised nearly S$1.2 billion through the debt capital market during the past quarter to term out its debt profile," he said.
Mr Yau also sees a silver lining. "Olam may well reduce the pace of its planned expansion as investors signal that more careful execution and reduced leverage are preferred metrics. We see this as a small positive, as it will certainly allow investors to better digest its growth plans."
engyeow@sph.com.sg
bilateral bank relationships normally are the easiest for bank to pull out(short term in nature, just let the loan run off and not re-finance). so that's the most risky loans of Olam. It is only 26%. maybe that's the reason why CLSA thinks it is not that risky?
my guess only. don't shoot me if I am wrong.
There is a cover story on Olam & Muddy Waters in The Edge Singapore, titled "Olam under attack".
A detail story worth a read, for those interested to know more on Olam.