December 21, 2012 12:09 pm

Olam – Muddied waters

Timing is everything in battle between short seller and commodities trader

In investing, timing is everything. Short sellers observe this rule just as much as traditional investors looking for upside. For both types it can add peculiar characteristics to short attacks near the year end. Olam is one example.

This week the Singaporean commodities trader, targeted by Muddy Waters last month, set some dates in the timetable for its complex debt-and-delayed-equity capital-raising offer. Temasek, the Singapore investment agency which is its second-biggest shareholder and is underwriting the offer, also bought shares in the open market, taking its stake to 18 per cent. The net result has been that Olam’s shares rose 10 per cent this week, halting the downward momentum that had knocked a fifth off its value since Muddy Waters made its allegations. Normally, that would be enough time for observers to gauge market reaction to the short attack and the company’s response. This one has been, er, muddied, by Olam’s capital raising, but neither side seems to have the advantage.

A one-fifth price fall for a Muddy Waters target does not imply strong backing for its thesis (though Olam’s shares continued to slide after it unveiled its capital-raising in December). Muddy Waters claims that a financially overstretched Olam, with overvalued assets, is on the brink of collapse. Olam denies that this is the case. Analyst ratings are non-committal. The proportion that rate Olam a buy has fallen by a quarter since the attack, according to Bloomberg data, but just over half are still positive, above the average for companies in Singapore’s Straits Times index. Yet Olam’s 10 per cent rally this week is hardly a huge vote of confidence either.

The answer is timing. December makes for peculiar markets and an aversion to fresh risk by investors with year-end targets. Time enough in the new year to see which way investors will jump.

Email the Lex team in confidence at lex@ft.com

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