“Our strategy is to deliberately provide a lack of detailed explication.” - David Bryant, RFF Webinar 8 August 2019 On 6 August 2019 we published our initial opinion (“Report” on Rural Funds Group (ASX: RFF) (“RFF”, the “Company” which highlighted independent evidence from RFF’s largest independent customers that suggested RFF fabricated A$ 28 million of its reported rental income since FY’17. Additional evidence suggested that RFF entered into multiple nefarious transactions with RFF Management’s privately-held business, Rural Funds Management (“RFM” to siphon A$ 86+ million into RFM at the ultimate expense of RFF minority shareholders. On August 8, 2019, RFF responded (“RFF Response” to our allegations with a strategy of non-disclosure. Despite David Bryant’s claim yesterday to journalists that “What we will do from here is work to ensure maximum transparency with the objective being that we look after the unit holders of RFF,” investors did not receive transparency today from RFF Management. Instead, “we will not disclose” was repeatedly echoed in Bryant’s drivel to investors which provided zero clarity to investors about our allegations of RFF’s fabricated rental income or its increased related party transaction activity between RFM and RFF in the last 3 years. On a hosted webinar Q&A, David Bryant repeatedly fell back on the credibility of PwC to certify the accuracy of its reported financial statements. 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. RFF chose to remain silent on details about its customer relationships and its asset valuations. Our Report highlighted specific transactions and customer relationships with credible evidence that suggested RFF’s reported profits and net assets were artificially inflated. 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. We highlighted irrefutable evidence where RFF disclosed its A$ 75 million guarantee to J&F to that RFF’s newly acquired “feedlots can be stocked with cattle, appropriately fed, and looked after." If RFF’s A$ 75 million guarantee was meant for working capital, why was RFF’s guarantee immediately used to repay the A$ 30 million borrowed by RFM to acquire J&F? RFF’s Reponse confirmed that RFM received the equity benefit of J&F for free by using RFF’s A$ 75 million guarantee as a balance sheet backstop. How is that not a conflict of interest?? RFF Management avoided the discussion of its conflicts of interest that RFF Management operates both RFF and RFM, yet RFF Management owns 100% of RFM and owns less than 5% of RFF’s equity. RFF Management failed to disclose to investors how RFF Management’s lop-sided compensation structure between RFF and RFM is handled to ensure decisions are made by RFF Management to prioritize the best interests of RFF minority shareholders. RFF Management avoided the discussion about Michael Carroll’s clear clonflict of interest as director at SHV, at RFF, and at RFM. RFM’s business failed to generate cash from operations and has recently taken borrowings from RFF which coincided with RFM and RFM Related Fund lessees generating increasingly negative operating cash flows. Do these look like good underlying businesses to have as customers? Based on RFF’s Response, we do not expect RFF to volunteer any details to investors that would be helpful in understanding the value of RFF’s underlying assets. RFF stated that it engaged E&Y to conduct an Independent Review to confirm RFF’s reported financial statements. While this sounds like progress, if E&Y is paid by RFF to perform a voluntary review reported directly to, and paid for, by RFF, then how is RFF’s proposed Independent Review supposed to actually produce any independent findings? What the hell is the difference between E&Y’s Independent Review and RFF paying for a second certified audit opinion? We suggest that ASIC follow the lead of Singapore Regulators in the case of Best World Inc. We think the only way for there to truly be an independent investigation is for results to be reported directly to ASIC at the same time results are reported to RFF’s Audit Committee. We believe the outcome of corrected financial statements will reveal that RFF minority shareholders were always designed to be last in line when RFF’s capital raising days were over and the music stopped. Because of this, we are short RFF and believe RFF’s equity is ultimately worthless. |
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