The Straits Times
www.straitstimes.com
Published on Dec 08, 2012
'Olam is not another Enron'
Firm just moved too fast, too far: Ex-Temasek exec
OLAM International, the commodity trader that Muddy Waters said may fail, isn't another Enron Corp, according to a former senior managing director at Temasek Holdings.
"I completely reject" the Enron comparison made by Muddy Waters, Mr Michael Dee, who worked at Temasek from 2008 to 2010, said in an interview with Mr Rishaad Salamat on Bloomberg Television's On The Move Asia yesterday.
"(Olam is) a company that saw a tremendous business opportunity, to take an existing platform and grow it on the back of relatively inexpensive debt. And perhaps executed that a little bit too fast and too far," Mr Dee said.
Shares in Olam, the world's second-largest rice trader, have slumped 16 per cent since Muddy Waters' founder, Mr Carson Block, first made his allegations on Nov 19.
Olam has responded with a lawsuit against the research firm and Mr Block, and a plan to sell as much as US$1.25 billion (S$1.53 billion) of bonds and warrants to address "lingering doubts", according to Olam chief executive officer Sunny Verghese.
"In the short term, they need to de-lever the company," Mr Dee said. "I do think that is doable and is not overly difficult."
The stock rose one cent to $1.46 yesterday morning. Its US$500 million of 5.75 per cent notes due were quoted at 87.2 cents on the dollar in mid-morning trade, up from 86.7 cents yesterday, according to Bloomberg prices.
Olam said this week it will offer US$750 million in bonds and up to US$500 million in warrants to existing shareholders, and Temasek, its second-largest shareholder, agreed to buy any rights not taken up by other investors. Temasek holds a 16 per cent stake in Olam, according to data compiled by Bloomberg.
"Excluding the costs of the warrants attached to the bonds, the yield will be about 13 per cent instead of the 8 per cent that Olam would like investors to believe," Mr Dee said on Thursday in a separate interview. "The marketplace hasn't really understood what the real costs for the company are."
As part of a 10-point plan for Olam, Mr Dee, in a Business Times report on Thursday, called for the company to sell stock instead of issuing bonds, saying "the supply of cheap debt is over".
He reiterated that Olam needs to reduce debt, "take a breather from rapid expansion" and be more transparent.
The company has already stated its rationale for the bond sale, Mr Aditya Renjen, Olam's general manager of investor relations, had said in response to questions about Mr Dee's comments. "The objective from our perspective was to have something in both equity as well as debt, and for the benefit of our long-term continuing shareholders."
Enron, once the world's largest energy trader, plunged into bankruptcy in December 2001 following revelations it was using off-balance-sheet vehicles to hide billions of dollars in losses and inflate its share price. More than 5,000 Enron employees were fired and about US$1 billion in retirement money was lost.
"Views and opinions expressed by former Temasek employees and management do not represent the views of Temasek; even if those former employees are identified as former employees," Temasek said in a statement on its website.
Mr Block should not have waited so long to release his 133-page report, in which he rated Olam a strong sell, after he first raised doubts about the company at a hedge fund conference last month, Mr Dee said. Other than that, Mr Block is providing a service to investors and offering "a wake-up call for the company and board".
The former Temasek director says he would now wait for a plan of action from Olam. "I would like to see them have a holistic response from a business strategy to the current situation and to accept the new reality," Mr Dee said yesterday.
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