Rewards of Transparency: Beleaguered Noble Group Wins Breathing Space

Whatever you say about commodities trader Noble Group – and its critics have said and still say a lot of negative things – one thing has become clear. The company is working very hard to demonstrate its commitment to transparency and to persuade stakeholders and the markets that the critics are wrong.

Trading at S$0.545 on August 31, the Singapore-listed firm’s stock price has risen 31% since August 18, although it is still down 52% from mid-February

The latest initiative is the hiring of Big Four accounting firm PwC to provide an independent assessment of Noble’s fair value policies and procedures. Noble then released the full report without any redactions, instead of just the executive summary, as is typically the case.

PwC essentially endorsed as reliable the way Noble goes about assigning fair value to its contracts. “Overall, we note that Noble has adopted an approach to valuations which is consistent with the Relevant Criteria, in all material respects,” PwC concluded.

“Indeed, in some aspects of the model construction (such as the development of discount rates and development of counterparty credit risk curves), Noble has an approach which is more sophisticated than that of many non-financial companies.”

Firing back

But the critics were not mollified. Personal investor Michael Dee, a former senior executive at Morgan Stanley and Singapore’s sovereign-wealth fund Temasek Holdings, harrumphed: “The engagement of PwC was specifically narrowed so as to make the report’s outcome a given and to eliminate any work by PwC into areas which the Audit Committee, the Board, the CEO/CFO and, most importantly, the founder did not want explored.”

At the Investor Day event that Noble held in Singapore on August 17, Noble CEO Yusuf Alireza shot back: “Does anyone in this room really believe that PwC are going to put their reputation on the line to rubber stamp the situation for a few hundred thousand dollars?” He went on to note that both Moody’s and S&P were reassured by the PwC report and had confirmed Noble’s investment-grade rating.

The subtext: Who is more credible, Michael Dee or the two credit rating agencies? A third agency, Fitch Ratings, also affirmed the company’s investment-grade rating on August 20. It cited Noble’s strong liquidity headroom, stable financial profile reflected in its second-quarter results, and its expectation of “stronger operating cash flow generation in the second half of 2015.”   

Deluge of data

For now, Noble’s new seemingly tell-all strategy seems to be working. Trading at S$0.545 on August 31, the Singapore-listed firm’s stock price has risen 31% since August 18, the day after the Investor Day meeting, despite the global stock market rout that saw the Dow Jones Industrial Average fall 10% from its recent peak on August 21. Singapore’s Straits Times Index fell 4.2% in the same period.

Noble, however, is still down 52% from mid-February, when a little known outfit calling itself Iceberg Research accused the company of accounting irregularities and claimed it was going to be the next Enron. (The Straits Times Index fell only 14.7% in the same period.) Short-seller Muddy Waters piled on with its own negative report. Dee, who says he has no shares or trading position in Noble, joined the anti-Noble fight as well.

The company now vows to be as transparent as possible. In addition to releasing the full PwC report, Noble has also made available a video of Alireza going through a presentation at the Investor Day. A 28-page transcript of the question-and-answer session that followed with shareholders, analysts and the press has also been released.

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