Hedge fund Muddy Waters issued another report stating that the Luxembourg-registered CPI Property Group (CPI PG), a real estate company controlled by Czech billionaire Radovan Vitek, is inflating the value of its assets.

Muddy Waters's November report sent CPI PG's stocks and bonds to a record low.

In December, CPI PG issued a statement that Muddy Waters “attempted to create an impression that CPI PG was hiding related party transactions” and that “Muddy Waters got it wrong”.

In the latest report from January 22, Muddy Waters alleged that CPI PG’s portfolios in Berlin, Prague and Warsaw are overvalued.

“CPI PG’s Berlin office portfolio appears significantly overvalued based on the divergence in its valuation from overall German market trends”, Muddy Waters stated. In the case of CPI PG’s office property in Berlin’s Reuchlinstrasse, Muddy Waters says the building is overvalued by 84% relative to the average price trend in office space in Berlin and the absence of significant investments in the building.

It added that “CPI PG seems to significantly inflate the reported vacancy rates in its Prague and Warsaw office portfolios”.

In Prague, CPI PG reports a vacancy rate of 6.3% vs. 14.3%, derived by Muddy Waters from vacant space advertisements, and in Warsaw it is 7.0% and 14.0%, respectively.

“We also show that CPI PG seems to significantly mislead investors about the states of its Prague and Warsaw occupancy levels. These apparent overstatements imply that the valuations for properties in these markets (€2.8bn) are inflated”, the overview of the Muddy Waters report also reads.

The report also states that CPI PG’s massive land bank in Prague-Bubny intended for development is highly overvalued. Its value of €1,378 per sqm in CPI PG’s books is roughly double the average Muddy Waters arrives at when comparing it to other plots.

CPI PG quickly issued a press release in response to Muddy Waters' second report.

“Similar to the first report, the second attempt includes sensational statements, recycled criticisms and poor research”, CPI PG stated, adding that it “will prepare a detailed and professional response based on facts”.

“The first report by Muddy Waters had no impact on CPI PG’s access to liquidity, disposals, or other strategic plans. Our stakeholders have been enormously supportive, for which we are grateful”, CPI PG also stated.

CPI PG’s management has promised to hold a conference call for bondholders following the second part of Muddy Waters’ report.

Prague-based brokers J&T commented that "despite its length, the [Muddy Waters] document does not, in our view, present a strong enough case to challenge the valuations".

CPI PG's portfolio is valued at over €20bn, according to the company, and its key locations are Prague, Berlin, Warsaw and the CEE region. CPI PG stocks are listed on the Frankfurt Stock Exchange.  

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 and those from Europe and North America. It documented frauds in the Chinese company Sino-Forest, whose stocks were traded in Canada.