Prem Watsa clears air over charges by Muddy Waters

Indian-Canadian billionaire Prem Watsa strongly refuted the allegations levelled by short seller Muddy Waters and firmly stood by his company’s track record of returns to investors, amid charges of accounting abuse against Fairfax Financial Holdings, a Toronto-listed investment firm he founded four decades ago.

Fairfax Financial Holdings has invested $7 billion (about Rs 58,100 crore at current exchange rates) in India.

“We are neither Berkshire Hathaway nor GE, as Muddy Waters suggests,” said Watsa, who earned the moniker of Canada’s Warren Buffet because of his hugely successful track record as an investor.

Muddy Waters had alleged in a report on February 8 that Fairfax Financial Holdings was the “GE of Canada” and not the Berkshire Hathaway that it was touted to be, sending the company’s shares tumbling 12%. The company’s shares pared half the losses in early trading in Toronto on Monday.

GE settled $200 million in penalties from the US stock market regulator in 2020 for alleged accounting violations.

“Over 38 years, our book value per share has compounded by 18.9% and our stock price at 18% per year. Out of 6,000 companies listed in the US in 1985, less than 20 companies have a similar record,” said Watsa.

Fairfax Financial Holdings owns multiple companies in India, including Thomas Cook, CSB Bank, Bangalore International Airport, Quess Corp and Digit Insurance.

Terming the allegations of the short seller “false and misleading”, Fairfax Financial Holdings said in a statement, “Muddy Waters has never attended our conference calls and never asked a question, called us or written to us, but instead went to CNBC during our quiet period with these one-sided, ill-informed allegations and insinuations in a transparent attempt to profit by short selling our stock.”

Meanwhile, shares of all listed Fairfax group companies in India – Thomas Cook, CSB Bank and Quess Corp – recorded losses of 2-6% in trading on Monday.

Muddy Waters had alleged that Fairfax, which has total assets of $84 billion, largely comprising investments in companies, inflated the fair value of certain investments to boost its book value by $4.5 billion.

It also alleged that Fairfax’s investment in India-listed Quess Corp was assigned a fair value in its books that was 87% higher than the company’s stock price in September 2023. This, it claimed, led to notional profits and accounting gains for the parent company that boosted its book value.

Fairfax Financial Holdings said it will hold a conference at its earnings announcement on February 16 to answer queries regarding the allegations.

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Roy Walsh

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