Noble Says Report Finds Accounting Practices In Line with Rules

File photo courtesy Noble Group

 

By Anshuman Daga and Rujun Shen

SINGAPORE, Aug 10 (Reuters) – Noble Group’s Chief Executive Yusuf Alireza sought to draw a line under a long-running accounting dispute after a report by board-appointed auditor PricewaterhouseCoopers (PwC) found no wrongdoing in the company’s accounting practices.

Noble published the accounting review together with second quarter results. The company said its net profit fell nearly 5 percent from a year earlier and that it would cut staff by 16 percent by year end in light of a global commodities downturn.

Shares in Singapore-listed Noble have lost 50 percent and bonds have weakened since February, hit by claims from blogger Iceberg Research that the company did not fairly represent the value of its commodity contracts. Noble has rejected the claims.

A global rout in commodities prices has also put Asia’s biggest commodities trader under pressure.

“The combination of the PwC report, the second quarter results and the Investor Day in Singapore on Monday hopefully will put to rest any questions and concerns about how we run our business, how we make money and the accounting around it,” Alireza told analysts during a conference call on Monday, a public holiday in Singapore.

PwC, which was hired by Noble about a month ago in response to calls from some investors for more accounting transparency, said its review of how the company conducted the fair value assessment of contracts was in line with relevant accounting standards and practices.

It also recommended that Noble strengthens the role of compliance or internal audit in order to improve the way it values some of its commodity contracts.

Noble’s board said in a statement it would begin implementing these recommendations immediately to ensure the Hong Kong-based company stays a leader in its industry with regard to mark-to-market (MTM) valuations of contracts.

The company’s accounts are currently audited by EY.

Analysts welcomed quarterly results and the report although it was not immediately clear if this would mean the end of Noble’s woes.

“There may be some way to go,” said Roger Tan, chief executive of Voyage Research. “In the accounting policies, there is enough flexibility to manoeuvre. So it’s a question of which side of the coin you are arguing on.”

Standard & Poor’s cut its outlook on Noble to ‘negative’ from ‘stable’ in June and said its main concern was over Noble’s valuations of long-term supply contracts.

WAR OF WORDS

To boost support for its stock, Noble spent S$131 million ($94.56 million) to buy back its shares 11 times in June and July.

Short sellers that seek to profit from declining stock prices in a market-listed company have also increased their activity in Noble, data from Markit showed.

Iceberg Research, whom Noble has said was set up by a former employee, said the report was not enough to dispel investors’ doubts.

“PwC merely answered the question: are Noble’s MTM formally in compliance with accounting rules, which is what EY has been doing for years,” a representative from Iceberg said in an email to Reuters.

In its quarterly report, Noble said net fair value gains on commodity contracts and derivative financial instruments – a target of criticism – declined by nearly $490 million or 10.7 percent to $4.1 billion by the end of June from December 2014.

Richard Elman, Noble’s chairman and founder, is the firm’s biggest shareholder with about a fifth of its shares. China Investment Corp is Noble’s second-largest shareholder with a 9 percent stake.

“Noble has put up a decent set of results and the fact that PwC examined each contract to check valuations should provide comfort,” a Singapore-based analyst said. ($1 = 1.3854 Singapore dollars) (Reporting by Anshuman Daga and Rujun Shen; Editing by Muralikumar Anantharaman and Lisa Jucca)

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