Olam CEO shares pointers on avoiding shortseller attacks
Singapore
THERE are certain attributes that make a business more vulnerable to a shortseller attack, and companies have to make sure to avoid having these if they do not want to be targeted, said Sunny Verghese, CEO of Olam International.
"We have now understood what makes you vulnerable to a short attack, and we have developed a strategy - whether it's governance, capital structure, type of shareholder - that will prevent us from becoming vulnerable," Mr Verghese said.
The first is to ensure that the firm has committed long-term shareholders, while the second is to maintain the trust of the company's stakeholders.
"In order for you not to be vulnerable to that kind of attack, you need the trust of all your stakeholders: shareholders, creditors including bankers and debt-holders, customers, suppliers, partners, your employees, communities and the government. All of these people should be understanding your business such that they can ignore a shortseller attack which is done without integrity."
Shortselling is not bad in itself, Mr Verghese added. Olam had come under attack by US shortseller Muddy Waters in November 2012, when its founder Carson Block accused Olam of being a "fiscal black hole" at a London investment conference.
A week later, the research firm issued a report that criticised Olam for having poor cash flows, "off the rails" capex and an overly-high leverage. This depressed Olam's shares until Temasek Holdings stepped in to back a US$1.25 billion rights issue in December 2012, and in March last year launched a general offer for Olam's shares together with the firm's founding family and management.
"(Shortselling) is a legitimate market activity," Mr Verghese told BT. "For any market system to work, you need people to be both long and short. You cannot have a capital market working without that."
"But we want people to do that with integrity." Shortsellers without integrity provide misleading research, he said.
Since the Olam and Muddy Waters saga, other Singapore-listed companies such as China Minzhong, Nobble Group and Silverlake Axis have also come under shortseller attacks, stirring further discussion on the practice and how companies should respond when targeted. The Singapore Exchange in August urged companies to respond quickly if they come under attack by shortsellers, and said it was willing to allow a halt or suspension in the trading of the stock , if necessary, while the company's response is being prepared.
Asked if it was Olam which initiated the conversation with Temasek to increase its stake in the firm, Mr Verghese said: "Errr..yah."
"Who initiated this is not really relevant," he added, "but it was both the companies' objective that we find more long-term shareholders."
While the founding Kewalram Chanrai group is no longer the largest shareholder of the group, it remains an important investor for Olam. The family had probably felt it would be in the interest of the company and its core shareholders when it welcomed Temasek to take a larger stake in the firm, said Mr Verghese.
"Obviously, I cannot speak for the family. But I am analysing the situation and saying that that is probably the reason...And once they lost their largest shareholder status, which was a critical decision, they were happy then for Mitsubishi to also come in and become a long-term shareholder."
"For the company, what is important is that we have long-term shareholders in our books. So we have Temasek, Mitsubishi, the family, the management team. All of us together own about 85 per cent of the company and that's a very good position for us to be."
Olam shares eased 2.5 cents to close at S$1.995 on Thursday amid a broad retreat in the market.
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