Olam slashes investments after Muddy Waters claims

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SINGAPORE  (AFP) – Singapore-based Olam International slashed capital spending by more than US$800 million Thursday just months after a short seller said the farm commodities supplier was masking debt and on the verge of collapse.

The company has clawed back much of its losses after Muddy Waters Research, a US-based short seller, had sent the stock plunging in November by warning that it was in danger of collapsing like US energy trader Enron.

In a statement after releasing the findings of a strategy review, the firm said it was reducing capital expenditure for 2014 to 2016 by more than Sg$1 billion (US$800 million) to between Sg$1.2 billion and Sg$1.6 billion.

A previous plan had earmarked between Sg$2.2 and Sg$3.6 billion for investments in the same period.

“In addition, Olam will scale down operations in select sub-scale profit centres and countries and release working capital from these business that can be deployed in other parts of our business,” the statement said.

The company said it was planning to have positive cash flows by its 2014 fiscal year.

“The strategy going forward aims to deliver the twin objectives of continued growth in profits, as well as accelerated free cash flow generation from core business,” chief executive Sunny Verghese said in the statement.

Verghese had previously angrily denied the allegations made by Muddy Waters’ founder Carson Block in November about discrepancies in Olam’s finances.

Block first raised questions about Olam’s accounting practices, debt levels, aggressive acquisitions and business model at an investment conference in London, before following up with a 133-page report.

Olam — whose key shareholder is Singapore’s state investment arm Temasek Holdings — hit back with a 45-page rebuttal and a defamation suit, which it later dropped.

Speaking to reporters at a press conference to unveil the findings of the strategic review, Verghese said Muddy Waters’ allegations had made Olam “stronger”.

“Shareholders… want us to be more cautious. They want us to focus more on cashflow generation”, he said.

“We will have market-leading growth rates in our industry. But we will give you (shareholders) now more information for you to make up your minds.”

Olam, which started out 23 years ago in Nigeria, sources products including cocoa, coffee, cashew, sesame and rice from 65 countries and supplies them to more than 11,600 customers.

Temasek Holdings owned a 16 percent stake in the company as of March 31.

The firm’s shares closed at Sg$1.67 on Thursday, down slightly from its level of Sg$1.74 a share before the allegations were made. The stock had fallen as much are 19.8 percent.

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