Peter DaSilva for The New York TimesMuddy Waters Research and its founder, Carson C. Block, are known for taking negative stances on Chinese companies. They are being sued by Olam International of Singapore over a recent report.
HONG KONG — Carson C. Block made a name for himself and his company, Muddy Waters Research, by betting big against the shares of Chinese companies that were listed in North America. Now he is setting his sights on Singapore.
On Wednesday, Muddy Waters published a scathing letter on its Web site saying that Olam International, an agricultural commodities company partly owned by the Singaporean sovereign wealth fund Temasek Holdings, was “at risk of collapsing” because of its debt load and other factors. The letter echoed similar comments Mr. Block made on Monday at a forum in London.
Olam responded on Wednesday, saying it had filed a lawsuit against Muddy Waters and Mr. Block in Singapore’s high court regarding the comments made in London. The suit involves charges of libel, slander or malicious falsehoods, a spokeswoman for Olam said. She added that the company was seeking damages but gave no details.
Olam’s chief executive, Sunny Verghese, hosted a conference call with investors and the news media, saying the company was one of the most-shorted stocks in Singapore and accusing Muddy Waters of “spreading these baseless assertions and trying to spook the market so that they can profit from their short position.”
Muddy Waters, based in Hong Kong and the United States, is best known for publishing highly critical reports on Chinese companies and profiting from its research by betting against their stocks.
Last year, Muddy Waters published a critical report on the Sino-Forest Corporation, a Chinese forestry company listed in Toronto. The stock dropped precipitously, creating huge losses for investors, including funds managed by the hedge fund billionaire John Paulson. Sino-Forest ultimately filed for bankruptcy.
After Mr. Block’s London comments, Olam’s shares fell 7.5 percent in Singapore on Tuesday once trading resumed after a temporary halt requested by the company. The stock recovered on Wednesday, rising 5.3 percent and closing at 1.695 Singapore dollars a share, or $1.38.
The rebound came despite the most recent Muddy Waters letter, which called Olam’s response to Mr. Block’s comments “extraordinary.”
“Companies that attack criticism the way Olam does fail to understand that raising money from the public is a privilege,” said the letter, addressed to Mr. Verghese and Olam’s directors. “Because Olam has received significant investment from the government of Singapore, Olam’s mismanagement of the public trust is that much less forgivable.”
Olam did not issue a direct response to the letter on Wednesday. In his comments on Tuesday, Mr. Verghese said Mr. Block had joined representatives of a hedge fund in a visit to Olam’s offices this month. He was dressed in a T-shirt, jeans and a baseball cap and gave a false name, according to Olam. It was only this week that Olam realized the visitor had been Mr. Block, Mr. Verghese said, after seeing photos of him on the Muddy Waters Web site.
In its letter, Muddy Waters called Olam’s trading halt and conference call a “frantic response,” saying the Singapore company also “evidenced a bizarre fixation on baseball caps.”
Before filing the legal action on Wednesday, Mr. Verghese said that Olam was trying to determine whether it had a case against Muddy Waters.
“The losses incurred by shareholders would more than justify the legal costs of pursuing this,” he said. “There are definitely disconcerting factors we have observed here in terms of some kind of manipulation.”
Short-selling is not as common in Singapore as it is in markets in the United States and in Europe, but Olam’s shares have experienced relatively heavy short-selling volumes recently. Since May, the percentage of the company’s shares on loan — an indication of short-selling activity — has more than doubled. According to data from the financial information services company Markit, 13.4 percent of Olam’s Singapore-traded shares are on loan, representing about four-fifths of all shares available to be borrowed.
Article source: http://dealbook.nytimes.com/2012/11/21/muddy-waters-turns-its-focus-on-singapore/?partner=rss&emc=rss