Noble bites bullet, undertakes review of accounting practices (Amended)

Singapore

AFTER seeing billions wiped off its market value, embattled commodities trader Noble Group has finally called for an external review of its accounting practices, in a bid to boost investor confidence.

In an early Tuesday statement, the group said it has commissioned PricewaterhouseCoopers LLP (PwC) to conduct a third-party review of its mark-to-market (MTM) models, valuations, as well as governance framework.

PwC was appointed by a newly established independent board committee, consisting of four of the company's non-executive independent directors - Paul Brough (as chairman), Irene Lee, Richard Margolis and Christopher Pratt - Noble said.

Market watchers told The Business Times they welcomed Noble's latest effort to address investor concerns, but said that the proof lies in the pudding.

OCBC Investment Research analyst Carey Wong noted: "The management noticed that their talking did not go along the way they hoped it would."

Iceberg Research, the little-known outfit which in mid-February jump-started criticism of Noble's accounting practices, said the key question is whether PwC will "seriously challenge valuations, counterparty by counterparty". "It is easy to be formally in compliance as the example of Yancoal shows," Iceberg said, referring to Noble's US$322 million carrying value of its 13 per cent stake in coal company Yancoal Australia, versus its much lower market value - a key area of contention between Noble and its critics.

Robert Medd, partner at research firm GMT Research, hopes to see Noble's gains split into short-term inventory hedges and long-term offtake agreements, and the latter further classified into commodity groups, as well as operating and yet-to-be-operating resource companies. "They can then reorganise their accounts, putting long-term contracts and the movements thereon in the balance sheet and cash-flow. Investors will then start to be able to gauge Noble's ability to generate cash."

The market in general reacted favourably to Noble's latest move on Tuesday, with the counter jumping as much as 4.2 per cent, before closing unchanged at S$0.715. A total of 53.8 million shares changed hands. Since mid-February, Noble shares have plunged about 40 per cent.

Upon completion of PwC's review, Noble said, the committee will report to the board and release a summary of the review.

Corporate governance advocate Mak Yuen Teen said Noble should consider releasing the full report, without redacting the findings before release. "With the scepticism in the market, the last thing Noble wants is to be seen to be practising selective disclosure of the findings from the review."

With questions raised about the true independence of the "independent directors" on Noble's board, Prof Mak also suggested the board co-opt one or two individuals into the committee who are not currently board members. David Gerald, president of the Securities Investors Association Singapore (SIAS), said the review "is a good move and is in the right direction". "Hopefully, the new initiatives should provide clarity on the effectiveness of the model."

In a statement on Tuesday, the Singapore Exchange (SGX) welcomed Noble's latest decision. "This will address and help bring closure to questions raised," it said.

Clarification: The article earlier quoted OCBC Research analyst Carey Wong as saying that Ernst & Young had provided a qualification to Noble's accounts. OCBC has clarified that Ernst & Young did not qualify the accounts.

READ MORE: Who's who on Noble's independent panel