Shares in Olam, 16 per cent-owned by Singapore state investor Temasek Holdings - which would not comment on th matter, closed down 7.5 per cent in heavy volume on Tuesday.
Muddy Waters, best known for targeting North American-listed Chinese companies, questioned Olam's capital expenditure and goodwill writedowns.
"We are unable to reconcile its capex (from last year) with announced projects," Block told a conference in London on Monday. He said his investigators had looked at Olam's investments in Africa, Asia and the United States.
"They have been very active in the public debt market. There is a lot of paper to short," he said.
Olam has $4.125 billion outstanding debt, including bonds and loans, according to Thomson Reuters CreditViews. The bulk of its bonds are held by retail investors who can be quick to unload paper, making for volatile prices.
Olam's 5.75 per cent bonds due 2017 fell 5 percentage points to 91/92 cents on the dollar.
Started by the Kewalram Chanrai Group in Nigeria, Olam has grown into a diverse agricultural commodities trading company with interests ranging from cocoa and coffee to nuts and sugar.
Chief executive Sunny Verghese has led an expansion that has seen it take on larger commodity players such as Noble Group and Wilmar International.
Olam also has an industrial raw materials segment which includes cotton, rubber and wood.
"We are dismayed at the nature and lack of substance of these assertions and opinions about Olam's financial position, particularly as we were not contacted in advance by Carson Block or anyone else from Muddy Waters," Olam said.
SHORTING
Olam is the most borrowed stock among Singapore's top 30 companies, suggesting heavy demand from short sellers.
Nearly 80 per cent of Olam's shares that can be borrowed were out on loan, compared with an average of about 6 per cent for the index constituents, according to Markit Securities Finance.
Also at the conference on Monday, John Armitage, chief investment officer of London-based Egerton Capital, said he was short Olam shares, saying the stock was "a great short".
Olam said its annual financial accounts were audited by Ernst & Young, which said the statements gave "a true and fair view of the state of affairs and financial results of the group and the company".
Company officials said in a conference call it would be able to fund operations for 18 months even if it were shut out of the debt markets as a result of the allegations by Muddy Waters, and it would now consider share buybacks after its price fell.
Past reports from Muddy Waters have hit shares in several Chinese companies including Sino-Forest Corp, which filed for bankruptcy protection early this year 10 months after the shortseller said the company had exaggerated its assets.
Muddy Waters has a mixed track record, however, and the share prices of some companies in its reports have bounced back.
"Muddy Waters seems to target companies with quite complex business models and accounting structures. So, it is difficult to get a handle on what is exactly happening in the company," said David Smith, head of corporate governance at Aberdeen Asset Management Asia.
"Given the complexity of the companies that they target, it means that there is always that lingering doubt regardless of what the company says," he said.
In February 2011, Olam denied there were inaccuracies in its accounts after a CLSA analyst raised concerns about internal controls, citing multiple and sometimes significant differences between Olam's audited and unaudited statements.
Olam said CLSA analyst Swati Chopra used examples which were incorrect. Chopra left CLSA a few months after the report was published and now works at a rival.
Olam reported a 26 per cent rise in quarterly net profit last week. Out of 21 analysts tracking the stock, 15 have "buy" or "strong buy" ratings, five have "hold" recommendations, and one has a "sell" call, Thomson Reuters data showed.
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