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Abu Dhabi, UAESunday 24 June 2018

'Noble Group set to drown in a perfect storm'

Iceberg Research predicts that the commodity trader will probably fail

The reception of Noble Group at its headquarters in Hong Kong March. Researcher Iceberg its forecasting the company's ultimate demise. Bobby Yip / Reuters
The reception of Noble Group at its headquarters in Hong Kong March. Researcher Iceberg its forecasting the company's ultimate demise. Bobby Yip / Reuters

Noble Group received a fresh broadside from Iceberg Research as the commodity trader’s long-time foe predicted that the company will probably fail, while telling executives that the anonymous commentator will not be silenced by being sued. Its shares traded steady.

“Noble is sinking in a perfect storm,” the researcher said in a report on Thursday. “The company is walking toward bankruptcy and liquidation. Its cost of fund is prohibitive. Noble is losing the confidence of its counter-parties and of its banks. Key traders are leaving.”

An external media spokesperson for Noble Group declined to comment on the report when contacted by Bloomberg. Iceberg Research, which does not identify its analysts, has been sparring with the Hong Kong-based company for more than two years. The trader has repeatedly denied Iceberg’s allegations.

Once Asia’s largest commodity trader, Noble Group has been in a spiral of decline since 2015, marked by losses, concern it will not be able to pay its debt, and accusations from Iceberg it inflated the value of some contracts. Last week, the company warned of a quarterly loss of as much as US$1.8 billion - including impairments of some hard-to-value contracts - and announced more asset sales. Moody’s Investors Service says the risk of default is elevated.

“Noble expects a massive loss of $1.8bn in its second quarter,” Iceberg said, adding all of the arguments it made against the company have been confirmed. It needs “billions from a new investor to repair its balance sheet and reverse its huge operating cash outflow”, the researcher said.

Noble Group’s shares were little changed after the release of Iceberg’s report, trading 1.3 pe rcent lower at 39 Singapore cents at 12:57pm. The stock has plunged 77 per cent this year, following double-digit declines in 2016 and 2015.

The trader has lost more than 90 per cent of its market value since 2015, when its accounts and disclosure were first challenged by Iceberg. The trader has rejected those claims, saying they are the work of a disgruntled ex-employee it had fired and embarked on litigation against him.

“The lawsuit initiated by Noble against us is ongoing, although progressing at an extremely slow pace,” Iceberg Research said in the report. “One of the objectives of this lawsuit was to silence us. We don’t write less when we are sued. We write more.”

Iceberg also commented on the role of Singapore’s financial market regulators, saying that Singapore Exchange (SGX), which runs the stock exchange, and the Monetary Authority of Singapore (MAS), the country’s de facto central bank, had failed to make adequate checks on Noble Group. The SGX spokeswoman Maynah Chin said she could not immediately comment.

“What is particularly shocking is that the SGX and the MAS have allowed Noble to raise more money,” Iceberg said, noting an equity raising last year that brought in $500 million and $750 million bonds sold to investors this year.

Rating agencies as well as the short-seller Carson Block have expressed concern about the potential for Noble Group to default or face restructuring. Last month, Moody’s said further expected deterioration in results in the second quarter “suggests that default risk will remain elevated”.

This week, the trader made a semi-annual coupon payment on its 2020 bonds, according to a company spokesperson. Attention now shifts to the next debt deadline - a $32.8 million payment on its 2022 notes on September 9, according to Bloomberg-compiled data. The company is due to report results next week.

“The support of key stakeholders over the coming few weeks and months will be critical,” Paul Brough, Noble Group’s chairman, said last month.

* Bloomberg