Noble avoiding real issues: critics

Singapore

SHARES in Noble Group came under renewed selling pressure on Tuesday as critics shrugged off the commodities trader's latest effort to shore up investor confidence.

Commenting on Noble's Investor Day effort on Monday to explain its business to analysts, bankers, shareholders and journalists, critics insist that Noble has yet to address the real issues, such as the proportion of its profits from fair valuation of mark-to-market contracts.

"The presentation was yet another marketing attempt without any substance," Gillem Tulloch, founder of Hong Kong-based independent research firm GMT Research, told The Business Times. "Noble continues to play with words whilst it avoids addressing the real issues."

On Tuesday, the counter was again the most heavily traded, as it had for many sessions in recent months. After opening higher and rising to 48 Singapore cents, it closed at 41.5 Singapore cents - a low not seen in 11 years - down almost 9 per cent, or four cents. There had also been buybacks by Noble.

Noble's management had in the inaugural Investor Day sought to explain its business model, address criticisms regarding its accounting practices and reaffirm the quality of its current balance sheet. It said it would evaluate all the options presented to the firm. CEO Yusuf Alireza emphasised that preserving its balance sheet was its top priority, particularly in light of the bearish commodities market.

Morgan Stanley Research said in a note on Monday that there had been "no material new disclosure" in the discussion that the firm had with analysts. "Whilst we didn't gain any additional insights to key questions we raised...we did hear on a number of occasions that management was prioritising a positive cashflow for the second half and maintaining its balance sheet ratios," wrote analysts Charles Spencer and Mean Phil Chong.

Noble also said that it aims to boost annual operating income to more than US$2 billion within five years, from US$1.49 billion last year.

Ruling out delisting as an option, Mr Alireza said at a press conference: "We are a public company and have 25 years of history as a successful public company."

In a report on Monday, rating agency Moody's, which last week downgraded Noble's credit outlook to "negative" from "stable", said that Noble's current Baa3 rating - the lowest investment rank - reflects its product and geographical diversity which helps mitigate the inherently volatile nature of a commodity market. The rating also considers the firm's inherent cash flow volatility, the current bearish market leading to the weaker liquidity profile, and the "as yet unfounded allegations of accounting impropriety".

Its analysts noted that "Noble's history of strong growth has been achieved alongside a strategy of maintaining a strong balance sheet and stable capital structure, which we expect to continue".

Meanwhile, short-selling levels of the stock - now the most shorted counter on the benchmark Straits Times Index - have more than doubled (see chart) over the last month, but the jury is still out on whether this would continue.

"With the supply of the stock available for lending now reaching utilisation levels above 80 per cent, this is a name that is becoming increasingly hard to borrow, which could restrict the activities of the short-sellers," said Madaline Prout, a Hong Kong-based spokesperson at SunGard's Astec Analytics. "It is too early to tell if yesterday's (Monday's) investor meeting has changed the views of the short-sellers.

Noble Group has been under attack since February, when a little-known outfit called Iceberg Research launched three reports criticising its accounting practices among others. Since then, short-sellers such as Muddy Waters and other critics such as GMT Research and former investment banker Michael Dee have also joined in the fray.

Mr Alireza on Monday questioned why many continued to listen to Iceberg, despite the anonymous blogger having "proven themselves to have lied at least twice" - it has failed to reveal its identity despite having promised to do so after its third report, and also its claims of having provided information to the Maritime and Port Authority of Singapore leading to the suspension of Noble's bunkering licence proved to be false, he said.

Iceberg said in response to BT's queries that it has identified itself to the Singapore Exchange and the Monetary Authority of Singapore "months ago", and provided them information on its own initiative. It has no short position on Noble, it reiterated, and is not working with any short-seller in any way.

Noble has identified a disgruntled former credit employee to be the person behind Iceberg. Explaining to shareholders that it will take time before Noble's lawsuit against him in Hong Kong is heard, Mr Alireza said: "We look forward to the day when he will need to defend himself and his actions in a court of law."