noble group under fresh attack 1022962015

Shares in Noble Group Limited (SGX:N21) crashed over 11 per cent to SG$0.505 on Wednesday, after Iceberg Research and former investment banker Michael Dee took fresh aim at the company and its accounting practices, and a decline in commodity prices raised concern about the company’s outlook.

"All the hype around Noble's release is fluff," Mr Dee said by e-mail, referring to PricewaterhouseCoopers’ review of the company’s accounting and valuation practices, according to the Straits Times. "It is not surprising that the market doesn't care."

Noble reported a decline in its quarterly profit on August 10, which led to a cut in price targets by at least five brokerages. Profit for the second quarter was down 5 per cent year-on-year to US$62.6 million (SG$86.88 million), following a 22 per cent drop in revenue to US$18.4 billion in the period. Net debt rose to US$4.3 billion.

Ratings agency Moody’s cut its outlook on the company’s debt to negative from stable. "The company's liquidity profile has weakened compared to levels over the last few years, which is negative for the ratings," Moody's said in a statement on Wednesday, according to the Business Times. Moody's affirmed Noble's rating at Baa3, the lowest investment grade. However, ratings agency S&P said the company’s outlook and rating remained unchanged despite slower second-quarter results.

Noble is Asia’s largest commodities trader and could be affected by the plunge in commodity prices in recent months, and particularly in the global financial turmoil following the successive devaluations of the Chinese yuan. The Bloomberg Commodity Index of 22 raw materials dropped as much as 0.6 per cent, falling for a second day, as traders fretted that the depreciation in the yuan will slow imports into China of copper, oil and other dollar-denominated imports because they become more expensive in terms of the local currency.

Michael Dee issued another open letter to Noble employees, asking them to resign, and warning that more job cuts could follow at the company. “Such dramatic lay-offs are a sign of significant long-term problems in the business model which, if not rectified, will likely lead to even more lay-offs or worse,” he wrote. “The current share price is at a steep discount of about 50 per cent to your book value which demonstrates a complete lack of confidence in your financial outlook and asset value.”

Iceberg Research also commented on Noble’s Q2 results and the PwC report. “As expected, PwC has not challenged the realism of Noble’s assumptions,” the blogger said. “It is very clear from the two PwC reports that this firm merely answered the question: are Noble’s mark-to-market (“MTM”) processes formally in compliance with accounting standards?”

“The PwC review fails to address the market’s concerns. Investors want to know the real value of these MTM, not whether Noble successfully exploits accounting loopholes.”