Muddy Waters founder Carson Block is betting against commodities supplier Olam International Ltd (16 percent owned by Temasek Holdings) because it believes the firm is at risk of insolvency and has been too aggressive in booking future so-called biological gains. Latter allows it to record future gains from plantations and dairy farms i.e. book earnings not yet realized. Like what Enron did with its gas futures, this accounting practice and debt exposure can turn ugly in a hurry.
Temasek is backing Olam's bid to raise US$1.25 billion to "shore up confidence". Block is saying Olam needs US$3 billion to stay afloat. By injecting equity, Temasek and participating shareholders are effectively diluting Olam's share price. The fund raising exercise will also cost Olam at least 10 percent in interest each year, putting further downward pressure on its stock. And benefiting short-sellers like Muddy Waters.
Block told The Wall Street Journal that Olam's plan to raise funds to allay fears about its balance sheet "solves nothing" and will merely delay its collapse. Once again, good money is thrown after bad. Our money.
The corollary here is that the prime minister is still insisting on diluting our national stake holding with the influx of foreigners. Reuters say expatriates make up more than 90 percent of Dubai's population, a future that's definitely not tenable for Singaporeans born here. Especially for those who have spent two years in Temasek green, risking life and limb for a losing cause.
The prime minister says, "We listen, but we have to lead". But, puh-leez, don't lead us into muddy waters. Like the jack-up rig at Jurong Shipyard, a failed braking system can tilt a whole superstructure. The little red dot is more vulnerable.