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Olam rebounds, Muddy Waters pours scorn

Shares in Olam International jumped to a two-week high yesterday, a day after the commodities giant announced a US$1.25-billion (S$1.52-billion) capital-raising exercise, but United States-based short seller Muddy Waters poured scorn on the rights issue, saying it would merely postpone the company’s “almost inevitable” collapse.

Olam had on Monday announced a five-year 6.75 per cent bond issue offered to its shareholders to raise US$750 million, stapled with warrants to raise another US$500 million, with the entire exercise fully backstopped by investment giant Temasek Holdings, its second-largest owner with a 16.3-per-cent stake.

Olam clarified yesterday that Temasek made its own independent assessment on the merits of the transaction and decided to support it.

The banks who brought the deal to Temasek also confirmed there was no mention of any concern regarding Olam’s credit position in their discussions with the investment company.

Investors piled into Olam shares after Monday’s trading halt was lifted, with the counter surging 8.6 per cent to an intraday high of S$1.71 before giving back most of those gains to finish at S$1.60 or 1.6 per cent higher.

It was the most actively traded counter by value and third-most active by volume, with more than 89 million shares changing hands.

“We believe this move will allay the fears of more investors regarding the risk of insolvency of Olam, particularly with Temasek’s commitment to take up 100 per cent of rights not subscribed,” said DMG & Partners analyst Leng Seng Choon, who is maintaining his target price of S$2.20 for the stock.

But other analysts were less sanguine. Bloomberg reported Maybank Kim Eng analyst James Koh as saying that “Olam management’s earlier stance that it could easily survive 12 to 18 months even in a credit market seizure may now sound hollow an

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