Agricultural real estate investment trust Rural Funds Group (ASX: RFF) saw its shares plunge 43 per cent this morning following an activist short sell attack from Bonitas Research.
The Texas-based fund was founded by Matthew Wiechert, also known as the founder of Glaucus Research which triggered the decline of Blue Sky Alternative Investments (ASX: BLA).
RFF - which leases farmland to agribusinesses involving poultry, cattle, almonds and cotton - has been described by Bonitas as an "ASX listed fraud".
On Twitter the activist short seller said the company had "many unsuspecting international mutual fund index holders" and believed Rural Funds Group was "worthless".
After the sudden fall in shares, RFF called a trading halt pending an announcement to the market.
The company now has a market capitalisation of around $455 million, which compares to total declared assets of $802 million and net assets of $532 million as at 31 December 2018.
In its report, Bonitas calculated net assets should be worth half that at $268 million, a value which would be in breach of its $400 million net asset loan covenant.
Bonitas alleged RFF's privately-held business Rural Funds Management (RFM) had been created to siphon proceeds from requity issuances and borrowings.
The Texan group also claimed reported profitability had included "fabricated" rental income of $28 million by RFF's two largest third-party lessees, almond producers Select Harvests (ASX: SHV) and Olam Orchards.
"RFF's largest nefarious transaction appeared as an undisclosed dividend recapitalization of RFM's newly acquired cattle asset, J&F, which included a A$ 30 million special cash dividend paid to RFM financed by borrowings backstopped by RFF's A$ 75 million financial guarantee to J&F," Bonitas said in the report.
"In addition, RFF's 1H'19 results disclosed that it was owed A$ 14.5 million from an RFM related party macadamia lessee which inexplicably did not appear on the lessee's balance sheet.
"In total, we calculate that through these two transactions plus various ongoing cash expenses and fees since FY'14, RFF Management had siphoned A$ 86+ million into RFM at the ultimate expense of RFF minority shareholders."
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We are short Rural Funds Group (#ASX: $RFF) and believe it is a Fraud. Expect $RFF#RFF to ultimately be worthless. New Fraud Report just released on our website https://t.co/c9zj9ObJr3@ActivistShorts@FT@business@markets@WSJbusiness@ASXBonitas Research (@BonitasResearch) August 6, 2019
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