An activist short-seller has valued Rural Funds Management's agricultural fund as "ultimately worthless," alleging it is falsifying accounts and over-inflating assets.
Bonitas is accusing RFM, the responsible entity for ASX-listed Rural Funds Group (ASX: RFF), for running "scams" on investors in the same vein that led to the demise of Blue Sky (ASX: BLA).
RFF is in the business of leasing agricultural properties and equipment, such as almond orchards, poultry, cattle, vineyards, cotton and water rights.
At the end of December 2018, Bonitas alleged RFF overstated its net assets by 100%, valuing the portfolio at its "true value" of $268 million. Additionally, RFF appeared to have fudged its FY17 profits by either fabricating rental income or applying dubious valuations to its assets.
As an example, RFF fabricated over $28 million of rental income by its two largest third-party lessees, Bonitas claimed.
It believes RFF artificially inflated its figures to raise cash from the capital markets for two reasons: to finance a 76% payout ratio to shareholders, and siphon assets into RFM that would advantage management personally.
The "largest nefarious transaction" was an undisclosed dividend recapitalisation of RFM's newly acquired cattle asset J&F Australia, Bonitas claimed.
This included a $30 million special cash dividend paid to RFM financed by borrowings backstopped by RFF's $75 million financial guarantee to J&F Australia.
Another transaction found RFF was owed $14.5 million from an RFM-related party. In these two transactions, Bonitas estimated RFF siphoned $86 million into RFM at the expense of minority shareholders.
RFM managing director David Bryant denied the allegations categorically on the ASX on August 8 via a webinar, stating he sticks by its independently audited financial accounts undertaken by PwC.
Bryant said EY has been called upon to further independently assess the accounts.
In response, Bonitas commented: "RFF avoided all discussion about the specifics of its rental income, instead claiming that for competitive reasons it would not disclose additional details about its customer relationships to investors."
Instead, Bryant's "drivel" provided zero clarity to investors about its rental income and related-party transaction activities over the last three years, Bonitas said.
"We have been in this business a long time, and remind readers that not once has there been a public market fraud that didn't trick an auditor into signing off on its historical reported financial statements," it said.
RFF's shares jumped 41% on August 8 to $1.92. It was trading at $2.35 prior to Bonitas releasing its report.