Blue Sky in freefall, calling for ASIC intervention
Written on the 4 April 2018 by David Simmons
Blue Sky Investments (ASX: BLA) has resumed trade on the ASX, however its stock price has continued to plummet following a Glaucus Research Group report which sent the company into freefall last week.
Shares in the Brisbane-based company have fallen more than 18 per cent today, after it released a statement refuting the majority of claims made by Glaucus in its report.
Due to the dramatic impact of the report, Blue Sky has called on the Australian Investments and Securities Commission (ASIC) to launch an investigation into the short selling hedge fund.
John Kain (pictured), chairman of Blue Sky, says on Tuesday morning Blue Sky "formally invited ASIC to investigate Glaucus and the short-selling of Blue Sky securities in recent months".
"Blue Sky is also concerned that Glaucus and any associates who engaged in the notable increase in short selling in recent months, may have manipulated the market in breach of the Corporations Act," says Kain.
The company's extensive 12-page response denies the majority of the allegations made by Glaucus in its research report.
Glaucus notably claimed that Blue Sky "wildly exaggerates" the fee-earning assets it manages, "unjustifiably" marks up the value of its investment portfolio and "gouges Australian investors with extortionate fees".
Blue Sky hit back citing the quality of the institutions it has attracted, including Goldman Sachs, the South Australian Government and First State Super.
The company also stood by its fee-earning assets under management (AUM) figure of $3.9 billion, while Glaucus claimed the figure was closer to $1.5 billion.
Blue Sky says Glaucus incorrectly valued its AUM because it excluded "numerous assets which Blue Sky manages because they have not been identified or because of the incorrect claim that they are advisory and not asset-managed mandates."
It went on to defend its non-traditional practice of including debt owed in assets under management, claiming it was "common reporting practice" for companies like Blue Sky.
The company also refuted Glaucus' claim that Blue Sky overstates its investment performance based on five claims. According to Blue Sky, "each claim is incorrect".
In addition to defending its valuation process, conducted by top-tier valuers like KPMG and Colliers, Blue Sky defended its investments and divestments in certain instances.
The group denied the allegation that new investors bought out old investors in the chicken chain Lenard's and portaloo company Viking Rentals.
However, Blue Sky did admit that for some of its funds, fee-earning assets under management were calculated based on revaluations of its portfolio and that increases in asset values drove up management fees.
The group defended its revaluation of Vinomofo, which "grew materially in that financial year" and its carrying value of Beach Burrito at less than $20 million instead of the $62 million asserted by Glaucus.
Blue Sky stood behind The Australian's assertion that the director of Bayfront, which acquired Viking Rentals from Blue Sky, "has no relation, or association with Blue Sky whatsoever". Glaucus claimed in its report that the acquisition of Viking was "deeply suspicious".
The group also defended the 2016 exit of Mark Sowerby, with his sale of almost $27 million worth of company stock.
"His family, and particularly his boys, had reached an age where he needed to be around, and this wasn't possible as managing director of Blue Sky."
Glaucus' attack on Blue Sky is not an isolated event; in March 2017 Glaucus launched a similar damning report on the now-collapsed sandalwood grower Quintis saying it had a "Ponzi-like structure".
The 12-page response to the Glaucus report hasn't been enough to stem the bleeding out of the investment company on the ASX. Shares are down 23.08 per cent to $8 per share at 10.42am AEDT.
Business News Australia
Author: David Simmons