Rural Funds Group rejects damaging report by short-seller Bonitas

Rural Funds Group has fired back after a report by US-based short seller Bonitas wiped $335m off its value.

Rural Funds Group’s assets include almond farms.

The listed Rural Funds Group has fired back at US-based short seller Bonitas Research after a negative report prompted a $335 million hit to the group’s value.

The stock is now in a halt until Thursday after the report from Bonitas sparked a 42 per cent plunge by questioning the company’s viability, saying its equity was “worthless”.

The report was launched by Glaucus Research co-founder Matt Wiechert, who has shifted to Bonitas.

His former short-selling house, Glaucus, earlier brought Blue Sky Alternative Investments to its knees.

The Bonitas report released on Monday night claimed the listed orchard, farm and cattle station owner had inflated its profits and conducted “nefarious” transactions with its manager.

The private Rural Funds Management, which runs the listed Rural Funds Group, has hit out at claims of benefiting from deals it has done with the listed trust it runs.

RFM managing director David Bryant rejected the claims.

“The claims in the report are false, it seems to accuse us of fraud on a vast scale — that is false,” he said.

The hard-hit company had a low profile in the real estate investment trust industry, even as it has grown to own about $920m worth of agricultural assets.

“We are preparing a line-by-line response to the report and aim to get that to the market as soon as possible,” Mr Bryant said.

“We’re keen that our investors, and the market, receive absolutely full transparency and we are working very quickly to provide all the information that people would want.”

Mr Bryant said the group had contacted the Australian Securities & Investments Commission, inviting it to inspect its reports.

RFM has also contacted independent lawyers and accountants to report on whether its accounts are true and accurate.

Mr Bryant said the Bonitas report came completely out of the blue and questioned the plausibility of the claims.

“It’s a real surprise … for this to have occurred there would have had to have been a conspiracy on a grand scale. It might happen at the movies,” he said.

The Bonitas report claimed the trust had inflated its profits and conducted “nefarious” deals.

It said that Rural Funds Group’s reported profitability had included more than $28m of “fabricated rental income” paid to the listed company by its two largest third-party lessees.

According to Bonitas’s account, Rural Funds Group had artificially inflated its performance to raise cash from the capital markets.

It cited two reasons: firstly, the group financing its attractive 76 per cent payout ratio to shareholders and, secondly, “multiple nefarious transactions” between the listed stock and the privately held business, RFM, that were alleged to have been done in order to siphon assets into that group for the management’s gain.

Bonitas claimed the listed group’s net assets were overstated by 100 per cent and the group’s true net assets figure was only $268m as at the end of December 2018, putting it in breach of its recently-increased minimum $400m net asset loan covenant.

The report further argued that almost all of Rural Funds Group’s reported profits since fiscal 2017 were attributable to either fabricated rental income or non-cash gains from dubious fair value changes applied to its assets.

Bonitas also compared the company to the now-collapsed TFS Corp and Blue Sky, which it alleged was guilty of inflating ­financial performance, charging exorbitant management fees and various related party transactions between public companies and private management businesses.

Rural Funds Group has undertaken capital raisings while expanding, but Bonitas said the outcome of the group’s “corrected financial statements” would reveal that minority shareholders were always designed to be last in line when its “capital raising days were over and the music stopped”.

“Because of this, we are short Rural Funds Group and believe Rural Funds Group’s equity is ultimately worthless,” the report said.