Riding out a short-seller crisis
Three cases provide lessons on how to strengthen company fundamentals and implement a well-planned response strategy.
SHORT sellers have been accused of attacking currencies, causing panic selling, crashing stock markets, and creating financial and economic crises. But, like it or not, they are legitimate players in today's financial system. All the other players (governments, regulators, investors, and companies) need to learn to co-exist with them, and, more importantly, strengthen their fundamentals and put in place a planned response strategy to survive the financial tsunami, if attacked.
In recent times, a few Singapore-listed companies have faced short-seller activism, sparked by unfavourable and damaging reports from whistle-blowing investment research firms, all of whom have names with damaging personae: Muddy Waters (obscuring clarity); Glaucus (probably named after the sea slug, glaucus atlanticus, whose sting can be both painful and dangerous); and Iceberg (treacherously dangerous to shipping vessels).
In November 2012, Olam was the first company to be targeted by Muddy Waters, who asserted that its business model was no longer viable, describing its acquisitions and capital expenditure (capex) as "fatal flaws and fiscal black holes". It essentially questioned Olam's "aggressive" accounting practices, challenging particularly its goodwill and fair value accounting treatment.
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