fairfax financial holdings accounting row: Less than 20 companies in US have our kind of track record, says Prem Watsa of Fairfax Financial

Indian-Canadian billionaire Prem Watsa has responded to allegations by short seller Muddy Waters firmly standing by his company’s track record of returns to investors amidst charges of accounting abuse against Fairfax Financial Holdings, a Toronto-listed investment giant that he founded four decades ago.

Fairfax has invested $7 billion 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 has alleged that Fairfax was “The GE of Canada” and not the Berkshire Hathaway that it was touted to be in a report on 8 february that sent Fairfax’s shares tumbling 12% . Its shares had pared half the losses in early trading in Toronto on 12 February. Muddy Waters reference to GE has to do with the company settling $200 million in penalties from 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 6000 companies listed in the US in 1985, less than 20 companies have a similar record”, said Watsa strongly refuting the claims of the short seller.

Fairfax owns multiple companies in India including Thomas Cook, CSB Bank, Bangalore International Airport, Quess Corp and Digit Insurance.Fairfax termed allegations of the short seller ‘false and misleading’.“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”, Fairfax said in the statement.

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

Muddy Waters has 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 has 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 had led to notional profits and accounting gains for the parent company that boosted its book value.

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

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