Noble Shares Slide after Accounting Questioned

Noble in Brazil

By MarEx 2015-02-17 15:01:55

Asian commodity trading firm Noble Group saw its shares slide for a second straight day in a rout that has wiped $770 million off its market value, hit by a report from a little known research firm that has questioned its accounting practices.

Noble, which is listed in Singapore but based in Hong Kong, has rejected claims from Iceberg Research which said in a report posted online on Sunday that Noble used aggressive accounting to mislead investors.

The report has underscored concerns about the complexity of Noble's business and its transparency, some analysts said, with OCBC Investment Research putting its buy rating on the company under review in its wake.

But the move has also raised questions over the power of small research outfits to inflict damage on listed firms, with investors keen to see the response from regulators and Noble shareholders such as sovereign wealth fund China Investment Corp which has a 9 percent stake.

Not much is known about Iceberg Research, which declined to comment on its background, analysts or its methodology. It said, however, that it did not have a short position on the company.

Noble issued a three-page statement late on Tuesday in which it gave a more detailed denial of allegations made by Iceberg and explained its accounting practices. Noble said neither it nor any of its external banking or investor stakeholders were familiar with Iceberg.

"We would like to thank all of our banking, investor and client stakeholders who have confirmed their support over the last 24 hours," Noble said.

The Monetary Authority of Singapore, the Singapore Exchange and China Investment Corp did not immediately reply to requests for comment.

DECISIVE RESPONSE WANTED

Shares in Noble have fallen 13 percent this week, with data for Monday showing executed short sell orders jumping to four times the daily average of the previous ten trading days.

"Noble has to buy investor confidence again," Roger Tan, CEO of Singapore-based Voyage Research.

"Pay dividends, show numbers, buy back shares and reduce the amount of spare cash in the company. After that, raise new capital again once the shares are stabilized."

But analysts noted the attack came when the company may be in a "blackout" period, as it is due to report annual financial results on Feb. 26.

Founded by British businessman Richard Elman in 1987, Noble is the second major Singapore-listed commodities trader to have its accounting practices challenged by a small research firm. Olam International was hit by a negative report from Muddy Waters in late 2012.

After the attack, Singapore state investor Temasek lifted its stake in Olam to around 57 percent from just under 25 percent.

Macquarie Research said two concerns highlighted by Iceberg - a possible writedown of Noble's 13 percent stake in Yancoal Australia Ltd and questions over proceeds from a stake sale in its agriculture business to a consortium led by China's COFCO - were valid but not new.

"Iceberg's conclusions are biased to the sensational, it omits any investment positives, and we wonder if all of its analytical inputs are valid," the brokerage said in a note that reiterated an outperform rating on Noble shares.

Hong Kong-listed Ozner Water also came under attack this week with short seller Glaucus Research accusing it of inflating its production. Its shares slid more than 20 percent on Monday before trading was halted. The company said it was preparing a detailed response.

Regulators may be taking a tougher stance towards small research firms. Hong Kong authorities said in December they were pursuing legal action against Andrew Left, the head of U.S.-based Citron Research, accusing the firm of spreading false information about developer Evergrande Real Estate Group. Left did not respond to a request for comment.

($1 = 1.3553 Singapore dollars)

Copyright Reuters 2015.