May 7, 2018 / 1:22 AM / 6 months ago

UPDATE 2-Australia's Blue Sky pulls guidance as shares dive under short-selling attack

* Blue Sky withdraws guidance, says to review business model

* U.S. short-seller Glaucus publicly attacked Blue Sky in March

* Blue Sky Shares hit 4-year low, down 78 pct since Glaucus report (Recasts, adds background on Glaucus, Blue Sky statement quotes and stockbroker comment)

By Tom Westbrook

SYDNEY, May 7 (Reuters) - Australia’s Blue Sky Alternative Investments scrapped its profit outlook on Monday and said its chairman would step down, as it looks to regain shareholders’ trust amid damaging allegations by a U.S.-based shortseller.

Shares of the asset manager cratered nearly 20 percent to a 4-year low on Monday, extending last month’s 70 percent plunge that followed claims by Califoria’s Glaucus Research Group that Blue Sky had overstated its size, exaggerated its performance and over-valued assets.

Blue Sky has said the claims are incorrect and misleading, but the slide in its shares - that has knocked A$692 million ($520 million) off its market capitalisation - has triggered debate about the value of activist short-selling in Australia’s relatively sedate market.

“Blue Sky underestimated the impact that shareholder activism could have on the business as a whole, inclusive of its shareholders, fund investors and staff,” the company said.

“An immediate priority is to rebuild trust with stakeholders by making significant changes to the business and management model,” the company added, as it pulled its 2018 profit view, having issued the guidance only three weeks ago.

Blue Sky also withdrew projections for fee-earning assets under management for 2018 and 2019 - figures Glaucus had said were inflated. It said every business unit was under review, while announcing Chairman John Kain’s departure and cost cuts.

“That’s very unusual, perhaps Glaucus are right,” said Michael McCarthy, Chief Markets Strategist at stockbroker CMC Markets. “If that does prove to be the case then you’d have to suggest that overall they’ve done that market a favour.”

Aggressive shorting is relatively new in Australia, but it is here to stay, McCarthy added.

RISING ACTIVISM

Blue Sky is the second firm to be targeted by Glaucus in Australia, after sandalwood company Quintis.

Quintis had been reeling since March 2017 when the U.S.-based activist short-seller published a highly negative report, describing shares in the company as worthless. It called in administrators in January.

Glaucus still has a short position in Blue Sky, a local paper, The Australian, quoted the head of research at Glaucus, Soren Aandahl, as saying on Monday.

The U.S. short seller did not immediately respond to a request for comment from Reuters.

Blue Sky has mostly struggled to fend off Glaucus’ attacks, with its trading updates lacking the kind of hard financial information needed to restore investors’ confidence.

The company’s managing director, Robert Shand, resigned last month and two other directors stepped down from the board.

Kain will step down as Blue Sky’s chairman once a successor is appointed, which the company aims to achieve before its annual general meeting scheduled for Oct. 15

Blue Sky stock closed down 8 percent at a four-year low of A$2.50 on Monday, dropping below Glaucus’ valuation of A$2.66. The broader market rose 0.4 percent. ($1 = 1.3319 Australian dollars) (Reporting by Tom Westbrook in SYDNEY. Additional reporting by Aaron Saldanha in Bengaluru; Editing by Edwina Gibbs and Himani Sarkar)

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