Shares of the Amsterdam-listed and Prague-headquartered regional defence and machinery conglomerate Czechoslovak Group (CSG) fell sharply after the release of a report casting doubt on the transparency of the company's January IPO as well as declared ammunition production capacities.

CSG shares fell by 13% and the trading had to be suspended on May 4 following release of analysis by a short seller Hunterbrook, which “suggest that the vast majority of its ammunition revenue comes not from making shells but from reselling them”.

It was the company’s worst trading day since CSG's January 23 IPO on the Euronext bourse in Amsterdam, which became the “world’s largest defence IPO ever recorded both in terms of amount raised and market capitalisation,” according to Euronext. The IPO made CSG owner Michal Strnad the third richest man under 40 worldwide.

CSG’s shares slightly firmed the next day and were traded at around €17.09 per share in the afternoon hours of May 6, or about half of the value to where the shares climbed the day after the IPO, which propelled CSG to the top of the Czech list of the most valuable companies.

Since then a series of Czech and Slovak media investigations have undermined CSG’s image and willingness to be transparent about its books, including the Bratislava-based Ján Kuciak Investigative Center's (ICJK's) story claiming that the key €58bn framework contact between CSG and the Slovak defence ministry could have been intended to send a positive signal to investors ahead of the company’s IPO.

Strnad himself faced a fresh backlash in Slovak media after IntelliNews reported that he is said to be in talks with the richest Czech investment company PPF Group over the sale of TV Markíza, the biggest commercial television station in Slovakia.

The company has faced criticism from Slovak liberal media for its close ties Slovak strongman Robert Fico for years, but CSG has consistently denied wrongdoing and its spokesperson Andrej Čírtek told IntelliNews that "the company’s listing on a stock exchange is a strictly regulated process, including both internal and external communication”.

The Hunterbrook analysis summed up the findings of the previous media report and also concluded that CSG’s IPO image as Central Europe’s next Rheinmetall is seriously flawed, and criticised the lack of scrutiny the company received on the financial markets.

The report stated that even with investments into its new production lines, CSG’s “total factory upgrades of roughly €205mn appear to amount to a fraction of what Rheinmetall has invested in capacity expansion so far”.

Hunterbrook described CSG as relying on an unstable reselling model and singled out the omission of its minority shareholder Petr Kratochvíl in the IPO documents as appearing “to be part of a broader pattern of undisclosed or under-disclosed insiders around CSG’s core subsidiaries and business practice”.

“Some of the money pooling may be making its way from CSG insiders to political partners,” Hunterbrook highlighted, and also noted that “before the Ukraine war, CSG was known for its close ties to Russia and Russian influence networks,” under the watch of Michal Strnad’s father Jaroslav, who was a prominent backer of Czech pro-Kremlin ex-President Miloš Zeman.

In a statement shared with IntelliNews, CSG responded that “the Company strongly disagrees with the conclusions and assertions presented” in the Hunterbrook report, adding that “the article contains inaccuracies, selective interpretations and mischaracterisations”.  

“In particular, CSG firmly rejects any suggestion that its prospectus or subsequent disclosures were incomplete or misleading. The Company stands by the integrity and accuracy of its IPO documentation and all post-IPO communications. These materials were prepared with appropriate diligence and in accordance with applicable legal and regulatory requirements,” CSG also stated in the response.

“CSG also reaffirms the strength and resilience of its business model. The Company continues to execute on its strategy, supported by solid operational performance and clear demand drivers,” CSG concluded, adding that “CSG is carefully reviewing the article in detail and reserves all its rights. The Company remains committed to transparent communication with its shareholders and the broader market”.