The board of beseiged farmland owner Rural Funds (ASX: RFF) has adopted a strategy to deliberately "lack detailed explanation" in its immediate response to financial irregularity allegations from US short seller Bonitas Research.
In early trading RFF shares were up almost 33 per cent at $1.80, but still well shy of the $2.34 where they were trading on Monday 5 August.
Following a rebuttal released just before 5pm yesterday, Rural Funds founder David Bryant held a webinar this morning in which he explained going into excess detail in response to Bonitas' "baseless" allegations could become "interminable".
The strategy instead is to change the rules of engagement given the US company can make allegations quickly by virtue of being outside Australian jurisdiction.
"In these sorts of instances, it would be reasonable to expect that as soon as we provide a response, Bonitas, who are not constrained by the Australian Corporations Act or by different Australian defamation law are free to write whatever they want and as quickly as they wish," Bryant said.
"So instead, we've reset the rules of the game, such that there will be a detailed response from an independent third party.
He noted Ernst & Young would be releasing a detailed response with its investigation into the matter in about three weeks' time.
The executive emphasised guidance and dividend payments would remain on track, and that company policy meant directors and staff could trade when the market opens this morning.
"I will be buying shares," he said.
"No one will take a financial hit if they hold their shares, and in fact people will make profits if they buy shares. I intend to do so."
One key allegation in the Bonitas report was the claim rental payments declared by RFF and its two major lessee almond growers Select Harvests (ASX: SHV) and Olam were vastly different.
"The fact of the matter is that the accounting for lease payments differs to accounting for lease receipts. Ernst and Young will speak to that in their report," Bryant said.
"In the annual accounts there are cash flow statements, they are signed off by the auditors. They will be inspected by Ernst and Young and they will be confirmed.
"I think the thing people need to understand at this point that we would not invite a competent, professional third party in to confirm our statements and confirm our accounts if we will not 100 per cent confident that our financial statements are accurate."
When asked whether the company would be releasing all commercial lease agreements so that shareholders and the public could dig into the detail, Bryant said it would not because they are commercial in confidence.
"The reason why they're commercial in confidence is that that gives us advantages in the marketplace when we're negotiating leases. Maintaining that asymmetry of information is in the interests of all unitholders," he said.
"Unitholders instead rely on the financial statements of the business which provides clear and sufficient information regarding the cash flows that support the distributions that you are paid."
The Bonitas report also alleged RFF's net assets should be worth $268 million instead of the $532 million reported as at 31 December 2018. If this were true the value would be in breach of the company's $400 million net asset loan covenant.
When asked whether RFF's banks were comfortable the group was in compliance with all its covenants, Bryant responded in the affirmative.
"The answer to that is yes. RFF is in compliance with all its covenants and they are fully supportive," he said.
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