Muddy Waters shorts CPI Property Group credit; bonds slammed

By Nell Mackenzie and Akanksha Khushi

LONDON (Reuters) -A key bond of CPI Property Group fell by the most on record on Tuesday after short-selling hedge fund Muddy Waters said it had bet against the credit of the Luxembourg-based commercial landlord.

In a report seen by Reuters, the fund said CPI Property Group’s controlling shareholder, Czech billionaire Radovan Vitek, had misstated the value of the company. The report also said some income had been booked against real estate properties that were in fact empty plots of land.

“We believe that Muddy Waters is categorically wrong about CPIPG,” the company said in a statement in response to the report. It also said CPI Property Group was considering “legal steps” against the hedge fund.

“Considering the detail involved, spanning transactions of various sizes over several years, CPIPG will take some time to respond completely and thoroughly,” the statement said.

Once the response is prepared, the company plans a call with its bondholders and will “actively seek ways to support our bondholders through buybacks,” the company said.

While property markets have faced difficulty, the European landlord said it continued to make “significant disposals” and continued to have access to bank financing.

Shares in CPI Property Group reversed course over the session, erasing earlier losses to close up 6.2% on the day. The price of the company’s 2027 medium-term note fell 4.3 cents – the most in a day ever – to 69.508, data from Tradeweb showed.

Muddy Waters did not specify against which bond it had taken a short position and the company has several outstanding notes listed.

CPI Property Group owns properties in Germany, the Czech Republic, Poland and elsewhere in Central and Eastern Europe.

The report details four transactions totaling about 441 million euros ($481 million) in which the report says the cash and real estate accounts “could be misstated”.

The four transactions focus on properties and companies changed hands among different owners through holding companies.

($1 = 0.9168 euros)

(Reporting by Nell Mackenzie; editing by Amanda Cooper and Jason Neely)