Muddy Waters Goes Short TeliaSonera Because Information Is 'Being Withheld' From Investors

• Muddy Waters recently sent out a letter tothe Directors of TeliaSonera ADR TLSNY, explaining why the firm is short the stock.
• The analysts argue that they think that information currently being withheld from investors, and the Board and management’s “(in)actions, will significantly impact the company’s shares and credit profile.”
• Shares of TeliaSonera are down more than 5 percent on Thursday trading.

Analysts at Muddy Waters wrote a letter to TeliaSonera’s Board of Directors explaining why they are currently shorting the stock. According to the epistle, the experts believe information being withheld from investors, coupled with the “Board and management’s (in)actions,” will have a significant negative impact on the company’s stock and credit profile.

Management has “provided some transparency into its misdeeds in Uzbekistan,” where –it appears- the company made corrupt payments Uzbekistan in excess of SEK 3.1 billion ($380 million).  However, management has not publicly commented on the probability of other Eurasian and Nepal operations suffering from similar problems.

More importantly, the experts assure Uzbekistan seems to be “only the tip of the iceberg.” The firm estimates that TeliaSonera could have spent more than SEK 17 billion (US$2.1 billion) in corrupt payments throughout its Eurasia and Nepal operations. In addition, they note that the company “is potentially obligated to make additional payment to a problematic partner in Azerbaijan of up to SEK 7.6 billion (US$934.5 million).”

The letter points out four major implications of the non-disclosure of further information:

1)   The company’s financial statements are “misleading, and likely contain material misstatements (…) Telia’s continued application of certain accounting gimmicks can be interpreted as the company still having a culture where the rules do not apply.”

2)   TeliaSonera is faced with three important “cash flow issues that implicate both its ability to pay the dividend and its credit profile.”

3)   The company may have to pay more than $1 billion in settlements and penalties.

4)   The Board and new management “do not appear to be capable of dealing with the significant challenges posed by TeliaSonera’s corruption issues. On the contrary, the company’s actions and statements demonstrate indecision and contradictory goals by juxtaposing dealing with regulatory investigations against continuing problematic –quite possibly illegal– conduct.

The bottom line, Muddy Waters assures, is that the balancing act the company is trying to perform “is impossible, and this scenario is unwinnable. The long-term is best served by dealing now with the inevitable before these problems grow even bigger,” the analysts conclude.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.