The Muddy Waters hedge fund is shorting the bonds of CPI Property Group, the Luxembourg-registered company controlled by Czech tycoon Radovan Vitek, saying it has doubts about the value of its assets. The report sent CPIPG bonds and stocks to a record low on November 21.
"We conclude that CPI PG’s controlling shareholder Radovan Vitek has been brazenly looting the company while significantly overstating the value of its assets," Muddy Waters said in a note.
The hedge fund said it had reviewed €1.2 billion of CPI PG transactions and that around half of the value in the transactions it examined were suspect.
"CPI PG’s corporate governance is farcical. We are also concerned about the integrity of CPI PG’s accounts, as accounting throughout the group appears haphazard at best, and indicates that the group’s cash and real estate accounts could be misstated," Muddy Waters said.
CPIPG responded that it is considering “legal steps” and that Muddy Waters is “categorically wrong about CPIPG”.
It said it would prepare a detailed response to the Muddy Waters allegations, and would then hold a call with its bondholders and will "actively seek ways to support our bondholders through buybacks," Reuters reported. The company also said it continued to make "significant disposals".
The price of the company’s 2027 medium-term note fell the most on record in a single day, by 4.3 cents, to 69.508, Reuters noted. On November 22, CPIPG stocks, listed on the Frankfurt stock exchange, erased earlier losses, closing up at 6.2%.
In June, CPIPG reported an increase in net rental income of 79.4% year-on-year to €197mn in the first quarter of 2023, attributing the significant increase to indexation.
CPIPG's portfolio is valued at over €20bn, according to the company, and its key locations are Prague, Berlin, Warsaw and the CEE region.
Vitek is the third richest Czech on the Forbes list of dollar billionaires, with a real-time net worth of $6.7bn. He began his activities in the early 1990s Czechoslovak wild privatisation era and has earned a reputation as a ruthless operator during his past deals in Prague and Vienna.
Muddy Waters has accused several companies of fraud in the past years, including companies from China and other Asian countries, but also companies from Europe and North America. It documented frauds in the Chinese company Sino-Forest, whose stocks were traded in Canada.