The Muddy Waters-Olam saga is far from over. But whatever its conclusion, commodities trading executives are worrying about its effects, noting that it is already impacting the appetite of Singapore’s capital market to finance the sector.
Over the past decade, the Asian island-state has become a crucial source of long-term capital, in the form of both equity and debt, for commodities trading houses and plantation companies.
The worry is that the attack by Muddy Waters, a well known short-seller, on Singapore-listed Olam, could make investors nervous about the whole commodities sector. “This is an industry in which trust is critical,” says the head of a rival trading house.
Industry executives in Singapore, Hong Kong, Geneva and New York privately say they fear some investors – particularly wealthy individuals – will take a step back from financing the industry until the waters around Olam clear.
“Singapore is very important for the industry and the accusations could make some investors, wrongly, nervous about the whole sector,” says the head of a large agribusiness investment company.
Olam is not the only trader listed in Singapore. The shares of Noble Group and Wilmar also trade in the city’s equity market. Plantation companies such as Golden Agri-Resources and Indofood Agri Resources have also listed their shares there, raising billions of US dollars.
Trading houses have also used its capital markets to raise long-term financing.
For example, when Louis Dreyfus Commodities tapped the debt market for the first time in its 160-year history in September, it decided to head for Singapore. More recently, Singapore has also become an important source of shorter-term commodity trade finance as eurozone banks, the traditional financiers of the industry, reduce their exposure to the sector.
The Muddy Waters-Olam dispute has another consequence – many executives feel it is a lesson for those thinking about following Glencore in listing their shares. “No one would be paying any attention to Olam if it was still a privately owned company,” says the chief executive of another agribusiness company. “Many will feel that their caution about the public market was justified,” says the executive, who says the attack, at least in part, reflects lack of knowledge about how the commodities trading companies work and finance themselves.
The Commodities Note is a daily online commentary on the industry from the Financial Times.
This article has been amended since original publication to reflect the fact that Muddy Waters is a research house, not a hedge fund.
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