Short seller Cohodes hits Canada again with latest target: Exchange Income

NEW YORK/TORONTO (Reuters) - Short seller Marc Cohodes, who has bet against the shares of six Canadian-based companies including Valeant Pharmaceuticals International Inc and Home Capital Group Inc, said on Wednesday that he is targeting yet another Canadian firm - Exchange Income Corp.

Cohodes told Reuters that Exchange Income - a Winnipeg-based company focused on opportunities in aerospace and aviation services and equipment, and manufacturing - does not generate enough cash to pay the juicy dividend it provides investors.

Exchange Income Corp said in a statement that the report is based on a number of statements, assumptions and opinions with which “we strenuously disagree.”

Cohodes’ targeting of Exchange is the latest in a string of moves against Canadian companies this year, adding to the short position in excavation company Badger Daylighting he made public in May. That same month U.S. hedge fund Muddy Waters said it was short Asanko Gold..

Short interest in Canada’s biggest banks spiked late in 2015 and remained elevated until April this year as some investors took bets on the collapse of the country’s housing market and that a rout in commodities markets would lead to a surge in bad loans.

But those positions, along with record short bets against the Canadian dollar, have simmered down in recent months as prices for oil and copper have stabilized, moves by the government to cool sharp jumps in Toronto and Vancouver house prices take effect, and as the central bank turned hawkish.

Cohodes said his focus on Canadian firms stems from his belief that there is no cohesive watchdog for nefarious company activity in the country, which lacks a federal regulator.

Cohodes, who worked at a short-selling hedge fund but now raises chickens in California and invests his own money, has also targeted Intertain Group Ltd, Concordia International Corp and Equitable Group Inc.

Wendy Berman, a securities lawyer with Cassels Brock in Toronto, said the patchwork of provincial regulators can lead to spotty enforcement of lapses in corporate reporting.

“Without a national securities regulator, you don’t have a national (enforcement) agenda, you have a local agenda, Berman said, adding that the provincial regulators vary in terms of their resources, experience and priorities.

Efforts to create a national body have long been stymied by political bickering, with a cooperative body incorporating the federal government and those provinces that have agreed to sign up not due to launch until 2018.

Exchange Income Corp shares fell as much as 10 percent to C$29.38 soon after the Reuters report, but pared losses and were last down 6.3 percent in early afternoon trade.

“They don’t have the cash flow, earnings or any form of business to generate a dividend yet they call it Exchange Income,” Cohodes said in a telephone interview.

Exchange said it has maintained a consistent strategy since its inception in 2004, enabling it to grow profitably and return a reliable and growing dividend to its shareholders.

“Nothing has changed,” the company said, adding that since 2004 it has paid shareholders C$300 million in dividends while maintaining a strong balance sheet with limited leverage.


Cohodes’ recent bets have paid off with the collapse of Valeant and Concordia and to some extent Home Capital, which Cohodes considers the “highlight” of his year so far, until Warren Buffett’s Berkshire Hathaway Inc last month agreed to make an equity infusion.

“Shortsellers have been profitable in Exchange Income so far this year,” said Ihor Dusaniwsky, head of research at S3 Partners, adding that they made 14.75 percent, year-to-date.

He said short sellers will fail to get significant short exposure in the stock because of the limited supply and as the cost to borrow the stock goes up.

Cohodes declined to disclose the size of his EIC short positions.

In November, Exchange Income announced that for the fourth time in the last 24 months, the company was increasing its dividend to an annualized rate of C$2.10, up 4.5 percent. Yet over the last five years, the company has increased its debt load by C$427 million and issued over C$230 million of shares to fund its C$700 million deficit, Cohodes said.

Reporting By Jennifer Ablan; Editing by Denny Thomas and Bernard Orr