Post by zuolun on Feb 17, 2015 10:55:13 GMT 7
US$1 billion wiped off market value of Noble Group and two other companies on Monday after reports queried accounts ~ 17 Feb 2015
It’s the Muddy Water saga all over again for beleaguered Noble Group ~ 17 Feb 2015
Noble Group rejects allegations by Iceberg Research ~ 16 Feb 2015
Are short sellers gunning for Singapore again? ~ 16 Feb 2015
Noble Group, a Repeat of Enron ~ 15 Feb 2015
Noble Group shares "striking" similarities to Enron: report
By Frankie Ho
16 Feb 2015
A report making its rounds on the Internet has likened Noble Group to Enron Corp, the US energy and commodities company that was brought to its knees in 2001 by a massive accounting scandal.
Iceberg Research, which claims that it identifies "substantial earnings misrepresentation and accounting irregularities" in financial statements issued by public companies, said in a Feb 15 report that Noble "exploits the accounting treatment of its associates to avoid large impairments and fabricate profit".
"Noble intentionally misleads credit agencies and investors," it said. "The financial similarities between Noble and the defunct commodity trader Enron are striking."
The report's impact on Noble's share price was huge. The stock fell as much as 9.5% to $1.09, prompting queries from the Singapore Exchange.
The author of the report was not named, although it stated that Iceberg Research has no positions on the stock.
It also put a price target of 10 cents of Noble's shares.
The report held out Noble's associate Yancoal, which reported losses of US$687 million in August 2013 due to an asset impairment and foreign-exchange differences, as the "most representative example", citing a US$600-million gap between its carrying value and its market value.
The carrying value is 55 times the market value of Noble's 13% stake in the Australia-listed coal miner and seven times Yancoal's market value, it said, noting that the discrepancy represents 11% of Noble’s equity or 12 cents a share.
"Associates are generally companies that are controlled more than 20% by a group and less than 50%. Noble controls only 13% of Yancoal. As such, Yancoal should be treated as a long-term investment.
"However, Noble claims that it has 'significant influence' to justify the classification as associate."
The advantage of "overvaluing" its associate on its balance sheet, according to the report, is that "when Noble has to recognise its share of losses, the starting point of the valuation in Noble’s books is so high that the carrying value is hardly eroded".
So even if Yancoal’s market cap is worth US$1 tomorrow, Noble would still be able to value it at more than US$600 million on its balance sheet, said Iceberg.
The only reason Noble regards Yancoal as an associate is that the accounting treatment enables the supply chain manager to avoid the latter's losses, it said.
"The valuation of Yancoal is now completely disconnected from the future cash flows expected from this associate."
PT Atlas
The report also named PT Atlas, an Indonesian coal miner, as an example of how Noble had profited from classifying it as an associate.
Noble, which owns 10% of PT Atlas, reclassified the company as an associate in March 2013 from a "held for trading financial asset", said the report.
The move "strangely" resulted in a re-measurement gain of US$25.5 million, it noted.
"We do not see any reason why the conversion into an associate should have triggered a re-measurement and profit. The stock price did not rise during the period."
As a whole, Noble's associates "have definitely been a cash drain" for Noble, and the sharp drop in their market value reveals "profound financial issues", the report said.
Agri business
It also raised concerns about Noble's agriculture business, in which the company now owns a 49% stake following the recent US$1.5-billion sale of a 51% interest to a consortium led by China's Cofco.
While net losses at the agri business narrowed to US$109 million in the first nine months of 2014 from US$371 million a year earlier, the headline improvement does not reveal the full picture, it noted.
"The improvement in 2014 is due to accounting factors (cutting depreciation, using subsidies and deferred tax assets). The underlying operational performance remains very poor.
"Agri is still making heavy losses and the recovery largely depends on external factors such as Brazilian government policies that Cofco and Noble do not control."
Noble rejects claims
In response to SGX's queries on the sharp fall in its share price, Noble said it noted the report but "completely rejects the allegations".
The company, which will announce its 2014 results on Feb 26, said it reserves its rights against Iceberg Research and will respond to the report.
