The latest apparent target of Muddy Waters – Olam International – saw its stock plummet Tuesday after the short-seller was quoted in media reports questioning the accounting practices of the Singapore-based commodity trading firm.
Carson BlockBut the revelation has left many market analysts scratching their heads. They said the issues raised by Muddy Waters aren't new, and that Olam, which is partly owned by Singapore state investor Temasek Holdings, has been transparent in its accounting and debt disclosures.
"We really need to look at what the allegations are," said Carey Wong, research manager with OCBC Bank in Singapore. "The most obvious one, the high level of debt, may be true but Olam has always been very transparent with their gearing. I don't think they're hiding anything per se."
It was reported in the media on Monday that Muddy Waters' founder, Carson Block, had criticized Olam's debt levels at an investment conference in London, saying that it had "reacted to the 2008 crisis by deciding to take huge leverage and invest in illiquid positions."
Block, who is reportedly shorting Olam's stock, also questioned the way the trading firm booked profits on its acquisitions as well as its valuations of its plantations, crops and livestock.
The reports prompted Olam to ask for temporary halt in the trading of its shares in Singapore on Tuesday. The stock plunged 11 percent when the suspension was lifted, but recovered some ground to close 7.5 percent lower. This follows a similarly brusing session for the stock overnight, when it lost 21 percent in U.S. over-the- counter trade.
Olam also issued a statement to the Singapore Exchange denying the allegations and said it stood by its financial statements.
"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," the company said. "We await the publication of their detailed report in this regard today (Tuesday) before we address issues raised by them in this proposed report."
Independent director and chairman of the firm's Audit & Compliance Committee, Michael Lim added, "We are fully confident and stand wholly behind our financial statements, accounting policies and procedures."
Analysts who track Olam note that the company has been fairly upfront with investors and more information is needed before the company is accused of any wrong-doing.
"So far from what we have seen, some of the issues are not new. Why Muddy Waters chose to bring it up now is a bit of a mystery," OCBC's Wong said.
Olam had flagged last week during its earnings announcement that it may raise more debt during the next 12-18 months, and its current debt-to-equity ratio is 2.03, according to a Nomura report published last week. This is less than its internal limit of 2.5 times and the benchmark of 4.5 times imposed by its bank loan agreements, Nomura said.
Olam's largest shareholder is India's Kewalram Chanrai Group, a trading firm which has operations in Nigeria and owns 20 percent of the firm. Its second-largest investor is Temasek, the Singapore government's investment arm, which holds a 16 percent stake.
Hit by low commodity prices, Olam's shares are one of the worst performers in the Singapore's Straits Times Index this year. The stock is down about 26 percent in a broader market which is up more than 11 percent. This is despite the company reporting a 26 percent gain in earnings for the September quarter compared to a year earlier.
James Koh, investment analyst at Maybank Kim Eng, said while investors have long been aware of the issues facing Olam, it was poor sentiment towards the commodities sector this year that has really hurt the stock.
(Read more: Everyone's Bailing on Commodities: 'Into the Abyss'?)
"If you have been following Olam, you would know this is nothing new," Koh said, referring to the accusations raised by Muddy Waters. "For example, booking profits ahead of the actual transactions and high gearing are quite common in the industry."
"The problem is the whole sector hasn't been doing very well over the past 12 months and the outlook also isn't great. So I think there are some disappointed investors." Koh added.
-By CNBC's Jean Chua.