It seems the pain hasn't stopped coming for embattled agricultural leaser Rural Funds Group (ASX: RFF), which has become the victim of yet another scathing research report attack. Rural Funds' shares were down nearly 3% in late afternoon trading yesterday on the news and closed at $1.95 per share.
What is Rural Funds being accused of?
According to the Australian Financial Review (AFR), this attack has come from Hong Kong-based advisory firm Bucephalus Research, who allege that Rural Funds' assets are being inflated through "financial engineering and creative accounting" purely intended to "line the pockets of the management company".
The AFR reports that on the first page of the report, Bucephalus states "RFF's unitholders are no doubt very happy with the performance of their investment so far, but we believe they are inadvertently being drawn into a Ponzi scheme that could collapse at any time."
Bucephalus follows on by estimating that the 'true' value of Rural Funds' shares lies around $1.20 or possibly lower.
How has Rural Funds responded?
In response to the release of these fresh accusations, Rural Funds released a statement to the ASX yesterday afternoon. In the release, the company's managing body stated:
In RFM's opinion, the document's criticisms are substantially similar to those made in the recent documents selectively released by short seller Bonitas. For this reason, RFM recommends investors refer to, and rely on, previous ASX announcements.
Bonitas shocked the market with its initial accusations in early August – accusing Rural Funds' equity of being "essentially worthless". Rural Funds' shares subsequently plunged more than 40% before being placed in a trading halt. The company then commissioned accounting firm Ernst & Young to conduct an audit of Rural Funds' accounts, which they released on 27 August, and dismissed the allegations made by Bonitas.
Although Rural Funds' shares have now recovered somewhat from the low of $1.36 hit just after the Bonitas report surfaced, the $2.35 price tag the company was commanding prior to these attacks is a reminder that it doesn't seem to be out of the woods yet.
