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Use of Muddy Waters reports is limited by the Terms of Service on its website, which are as follows.  To be authorized to access such reports, you must agree to these terms, regardless of whether you have downloaded its reports directly from this website or someone else has supplied the report to you without authorization.

To download the full report, check the box to agree with the Terms of Service and then click the “Download Report” button.

Use of Muddy Waters reports is limited by the Terms of Service on its website, which are as follows.  To be authorized to access such reports, you must agree to these terms, regardless of whether you have downloaded its reports directly from this website or someone else has supplied the report to you without authorization.

• Olam runs a high risk of failure. Its “asset heavy” strategy appears to be an off-the-rails CapEx and acquisition binge. Management talks about the “gestation” of these projects, but our research makes clear that they are marred by incompetence and perhaps significant misconduct. The vast majority of the acquisitions we have researched are of low quality assets that appear to bring little more than cosmetic benefits to Olam. In short, these projects are “pie in the sky” that we strongly believe are destroying substantial amounts of capital.
• Bond holders in particular should be asking where their money goes (and how they will get it back). Olam has spent S$571.0 million less on acquisitions than announced. However, it has spent S$996.2 million on unattributed non-acquisition CapEx – most of it since FY2011. One possible interpretation is that Olam is doing far more greenfield projects than realized, which greatly increases its risk profile. Another possible interpretation is that Olam has problems with internal controls and significant cash leakage.
• Over the years, Olam has committed a shocking number of accounting gaffes. We can conceive of two possible interpretations of its accounting track record – either its accounting functions are blithely incompetent; or, there could be malfeasance. (Both could be true as well.) The former interpretation has ominous implications for Olam’s oft self-promoted ability to manage risk. The latter interpretation obviously has even more dire implications.
• We believe it is instructive to view Olam through the lens of failed US trader Enron Corp. There are a number of material similarities in the way their businesses developed, and their actions.
• We value Olam on a liquidation basis because our opinion is that it is likely to fail. In the event of a liquidation, we estimate the present value of the debt to be 14 to 33 cents. In a liquidation, the equity would likely be wiped out, or given “nuisance value” at best.

To download the full report, check the box to agree with the Terms of Service and then click the “Download Report” button.

Use of Muddy Waters reports is limited by the Terms of Service on its website, which are as follows.  To be authorized to access such reports, you must agree to these terms, regardless of whether you have downloaded its reports directly from this website or someone else has supplied the report to you without authorization.

In the two and one-half years Muddy Waters, LLC has been openly criticizing publicly-traded companies, we have not seen a response as defensive as yours – not even from Sino-Forest. On Monday, our Director of Research gave a brief talk on Olam at a well-respected charity event. He presented facts about Olam along with Muddy Waters’s opinion that Olam is at risk of collapsing due to multiple factors, including its debt load. As Olam has since said, his comments were not overly substantive. But based on this alone, Olam halted its stock, scheduled two conference calls, discussed buying back shares, and issued statements that included saying it is not a “fly-by-night company”. It has further evidenced a bizarre fixation on baseball caps.

Olam’s disproportionate reaction is extraordinary in our experience. Should Olam come to collapse (as we believe it will), its use of much-needed cash to buy back shares at this time should give rise to questions about whether fiduciary responsibilities have been breached – particularly given the possible existence of individual motivations that are not necessarily aligned with those of Olam’s lenders. We also note Olam’s attempts to impugn our credibility.

You and your investors should note that attempting to silence critics is not a plan of corrective action. In no way does it make Olam stronger. The February 2011 CLSA report, which raised far fewer concerns than we have identified internally, and that Olam itself made so controversial, should have caused you to work toward repairing what ails your business and your balance sheet. Instead, Olam has since increased its a) debt load by approximately S$900 million, b) cumulative investment cash burn by approximately S$2 billion, and c) cumulative operating cash burn by approximately S$500 million. In other words, you did the exact opposite of what you should have done. Your actions have been an abject failure of leadership.

Companies that attack criticism the way Olam does fail to understand that raising money from the public is a privilege. Because Olam has received significant investment from the government of Singapore, Olam’s mismanagement of the public trust is that much less forgivable. Know this: You voluntarily came to the market, you subjected yourselves to its forces, and you must bear the consequences of your ineptitude.

We do not work for an investment bank, and cannot be bullied the way other analysts can. Our research into Olam has been exhaustive, and we plan to resolutely stand by it regardless of any attempts you might make to discredit it or us.

We therefore suggest you find better uses of your time than focusing on criticism. For instance, you might want to work on plans to reign in your CapEx and de-leverage. The clock is likely ticking.

Warmest Regards,
Muddy Waters, LLC

• EDU has reported 392% revenue growth since going public. The revenue growth has been built on store growth of 338% during this time. EDU tells investors that its entire store network is company-owned, but this is a lie. As recently as last month, EDU president and CFO Louis Hsieh adamantly denied that EDU has any franchisees. This report shows Hsieh’s statements are patently false – EDU has numerous franchisees. However, these franchisees are not a hidden bonus for investors. Rather, they are part of a substantial fraud in EDU’s accounts.
• It is virtually certain that EDU uses the upfront franchise and other fees to inflate its cash balances in order to receive unqualified audit opinions from its auditor.
• EDU’s Beijing operation (which is approximately 35% of EDU’s reported revenue) has prepared financial statements for 2009 – 2011 are fraudulent. EDU has submitted these financial statements to its domestic regulator, the Civil Affairs Bureau (“CAB”). It is probable that EDU used these same financials in the preparation of its U.S. filings.
• EDU’s corporate structure is far more problematic than just a weak VIE. The schools that conduct its operations are ultimately state property. We question how EDU can consolidate them.
• We believe that as a result of our exposure of these problems with EDU’s reporting, EDU will restate historical results – likely significantly; and, that its auditor will resign.

[1] Calculation based on RMB revenue, and excludes currency fluctuations.
[2] Store count number includes schools and learning centers; it excludes book stores.

To download the full report, check the box to agree with the Terms of Service and then click the “Download Report” button.

In addition to the PDF report, there are two videos to support our report. To view the video, check the box to agree with the Terms of Service and then click the “Watch the Video” button.

Download the white paper here.

The supporting documentation includes the “Fraud School” article translation as well as FSIN SAIC file.

Muddy Waters has launched a new interactive report format, with a narrated slide show (15 minutes) available on Vimeo at

http://vimeo.com/40098291

The slide deck (without narration) can also be downloaded (in PDF format) here.

In addition, Muddy Waters will soon release a white paper with the supporting material for the interactive report.