Noble Group faces crunch time in reputational battle over accounts

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Published: August 10, 2015 10:42:37 AM

Noble Group's investment grade credit rating is at stake when Asia's biggest commodities trader, which has been accused of poor accounting practices, releases the findings of an external report later on Monday on how it values some assets.

Noble Group’s  investment grade credit rating is at stake when Asia’s biggest commodities trader, which has been accused of poor accounting practices, releases the findings of an external report later on Monday on how it values some assets.

Singapore-listed Noble’s shares have lost half their value and its bonds have weakened after Iceberg Research in mid-February first accused the company of inflating its assets by billions of dollars by using accounting techniques to mislead markets. Noble has rejected the claims.

Standard & Poor’s cut its outlook on Noble to ‘negative’ from ‘stable’ in June and said its main concern was over Noble’s valuations of long-term supply contracts.

A ratings cut would push Noble to below investment grade – a rating especially crucial for commodities traders as they have razor-thin profit margins and depend heavily on bank financing for operations.

“Commodity traders have suffered an issue of opaqueness for many years, and as with others, if there is a greater transparency and high levels of disclosures, markets would rate it somewhat more charitably than it does now,” Nirgunan Tiruchelvam, an analyst at Religare Capital Markets.

“Transparency is a value that markets would recognize.”

Weaker commodities prices have also dimmed Noble’s outlook.

With sales of $86 billion last year, Hong Kong-headquartered  Noble is one of Asia’s largest firms to find itself in a reputational battle over accounts where consequences can be long-lasting. Its board appointed PricewaterhouseCoopers (PwC) to review its accounting practices to draw a line under the problem.

The company brought forward its results and PwC’s review, both of which will be released later on Monday, a public holiday, followed by an analysts’ call.

Noble has rejected claims, first made by Iceberg, and echoed later by others including short-seller Muddy Waters, that it needs to increasingly depend on fair value gains to boost its profits and said it will provide more details with its results.

Last year, it booked $4.6 billion of unrealized net fair value gains on commodity contracts and financial instruments, equivalent to 90 percent of its total equity.

Richard Elman, Noble’s biggest shareholder with about a fifth of its shares, has urged investors to have confidence in the company, while China Investment Corp, Noble’s second-largest shareholder with a 9 percent stake, has said it would support Noble’s business.

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