Short seller offers to pay for Olam credit rating
Muddy Waters has struck again, this time against Singapore commodities trader Olam, which plunged in the wake of a negative report from the increasingly well-known research and trading outfit.
This time, Muddy Waters, led by Carson Block, has come forward with a new tactic. It has publicly offered to pay for Olam to have its debt rated by a credit rating company, in this case Standard & Poor's. The offer highlighted the fact that the company's debt currently is not rated by such a firm.
"Olam now has no good reason to avoid having its debt rated. Should it continue to refuse a rating, investors should wonder whether the company is worried that a rating would mortally wound it by making clear that the market has been underpricing its risk," wrote Muddy Waters in its report.
Some advocates of credit rating reform have suggested that having investors pay for credit rating services would be superior to the issuer-pays-for-their-own-ratings system that we have now. Certainly, it takes out the main conflict of interest. In this arena, Muddy Waters is on high moral ground, as Olam runs the risk of appearing as if it has something to hide if it doesn't agree.
Muddy Waters has issued a deadline of COB December 5 for Olam to agree to the offer. Olam is not likely to take the company up on its offer. Instead it has been playing up the fact that it was audited by Ernst & Young, which has said it stands by its audit.
- here's a Deal Journal item
Commodity trader fights back against short-seller