Fiat and Petrobras among hedge funds' top short picks

LONDON Wed Nov 21, 2012 5:33am EST

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LONDON (Reuters) - Singapore commodities trader Olam is not the only stock on shortsellers' radar - higher-profile names such as Italian carmaker Fiat and Brazilian oil group Petrobras are also being targeted.

Speaking at a conference, hedge fund managers including Chris Cooper-Hohn - the founder of The Children's Investment Fund (TCI), U.S. shortseller Muddy Waters, and Kynikos founder Jim Chanos named stocks they saw as overvalued.

The Ira Sohn Conference in London's plush Mayfair district - a charitable event that raises money for paediatric cancer research - is seen in the United States as a must-attend event for wealthy investors and a rare chance to hear the secretive industry's top stock bets.

While comments by Muddy Waters have already sent Olam's (OLAM.SI) shares tumbling, TCI's Cooper-Hohn - known for high-profile activist positions in companies such as ABN Amro and J-Power in recent years - said Fiat (FIA.MI) was a good stock to short as he believed it will need to raise further cash.

Shorting, a favourite tool of hedge funds, means betting on a lower price for a stock.

Cooper-Hohn said Fiat, which owns sportscar maker Ferrari and a majority stake in Chrysler, was burning through cash and its debt levels were higher than the market believed.

"It is a bad company," said Cooper-Hohn. "People look at the net debt of 5 billion euros, ex-Chrysler. We think the gross debt is what matters ... we think it could be nearer to 20 billion euros. We think Fiat needs to do a rights issues as soon as possible."

Fiat was not available to comment. Last month, it sharply cut its targets for the next two years and said 2012 net industrial debt could hit 6.5 billion euros, up to one billion above a previous projection.

BRAZIL

In the wake of comment by Muddy Waters at the conference, Olam International shares fell 7.5 percent in heavy volume after the hedge fund, which is shorting Olam, attacked its accounting practices - charges that the company dismissed.

John Armitage, chief investment officer of London-based Egerton Capital, also told the conference he was short Olam shares, saying the stock was "a great short".

Meanwhile, Kynikos's Chanos, a short-seller who anticipated the collapse of Enron, said Brazilian mining company Vale (VALE5.SA) and state-led oil company Petrobras were "two of (his) favourite shorts".

He said the government's influence over both companies was "a form of state capitalism that is troubling" and could disadvantage other shareholders. While both look cheap on price/earnings ratios, they were "value traps", he said.

Neither company was available to comment.

Chanos said Vale was "basically a China story" which was "expanding into the (mining) glut at the point at which demand is about to fall".

Last month, Vale posted a 66 percent fall in quarterly profit, prompting it to delay major mining projects and consider the asset sales.

Meanwhile, Chanos said Petrobras (PETR4.SA) shareholders were "subsidising state policy" while its "finances remain unimpressive. Every single dollar that is coming in is going out, yet production is falling. That is not a business," he told the conference.

Last month Petrobras reported a drop in third-quarter net income and September output. Analysts said that much of an increase in wholesale gasoline and diesel prices was erased by higher costs.

(Editing by Dan Lalor)

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