Rural Funds hit by second share price ambush

Rural Funds blasts accounting critics for recycling falsehoods


A Hong Kong analytical group has aired more doubts on the real value of Rural Funds Group's farming portfolio


For the second time in as many months, Rural Funds Group, is batting away criticism of its accounts after a Hong Kong analytical group cast doubts on the real value of the asset manager's $900 million agricultural portfolio.

The Bucephalus Research Partnership has circulated a report accusing Rural Funds of running something akin to a Ponzi scheme, fabricating profits and inflating its true asset values in its financial statements.

Rural Funds Management has flatly rejected the criticism saying the claims were substantially similar to those made last month by US short seller, Bonitas Research.

RFM has since commenced legal action against in the Texan company Supreme Court of Australia, having released an independent assessment of the Bonitas' claims and its accounts by financial services giant, Ernst and Young (EY).

Bucephalus and Bonitas have released documents that are false, misleading and speculative, without any inquiry being made of RFM before their release - Rural Funds Management

Bucephalus argued group's share units should really be worth about $1.20 each, while in fact they have been trading about $1.70 this week.

They had climbed back above $2 again in late August after recovering from the Bonitas scare on the stock market which sent them plunging from $2.30 each.

Rural Funds is Australia's only listed agricultural real estate investment trust.

Its diverse rural portfolio ranges from poultry sheds to feedlots, almond orchards and cotton country which is leased to farming operators, with the rental revenue providing dividend distributions to the fund's investors.

It issued a four-point response to Bucephalus' claims, including allegations RFM had booked asset expenses, which most farmers would consider operating costs, as asset improvements, and that it extended the lives of its assets, cut depreciation costs and inflated profits.

RFM rejected the claims as false and noted short sellers like Bonitas and those associated with them made substantial profits from the decline in RFF share (unit) price.

"Bucephalus and Bonitas have released documents that are false, misleading and speculative, without any inquiry being made of RFM before their release," RFM said.

"Their documents are entirely without substantiation and are made out of the jurisdiction in their false view that they are beyond regulatory scrutiny in Australia."


The rural group said Bonitas allegations made last month had been "slavishly repeated by Bucephalus".

Bucephalus, however, has argued it was not a short seller and had no links with Bonitas.

RFM said the "Ponzi scheme" allegation was also false and misleading.

Rural Funds only raised capital to acquire new income generating assets and investor distributions were funded by cash generated by leasing assets, not from capital gained from investors.

It urged its investors to consider carefully the full rebuttal of the claims, corroborated by EY and the "fulsome audit reports of the group" by its auditors, PwC.

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