Noble Group comes out swinging after fresh attack

Noble Group has come out fighting against an attack by Muddy Waters, calling the US-based short seller's report questioning the commodity trader's financial strength and governance "inaccurate, unreliable and misleading".

The attack from Muddy Waters on Thursday was the latest critique faced by the Hong Kong-based company following a series of reports from a group called Iceberg Research.

Noble on Friday said it "categorically" rejected the claims and added that its balance sheet "has never been stronger or more liquid". 

Shares in Singapore-listed Noble are down almost 30 per cent since the first report was issued two months ago. On Friday they rose 4.1 per cent, in a broader market that was up 0.2 per cent, after falling as much as 9.3 per cent a day earlier.

Noble is Asia's biggest commodity trading house by revenues. It mines, ships and finances iron ore, coal and agricultural commodities including grains, sugar, palm oil and coffee.

The reports from both Muddy Waters and Iceberg claim that Noble's debt burden is higher than reported, and that management has used valuation estimates - permitted under accounting rules - that flatter the company's results. They also question the rationale of some specific transactions.

Short sellers aim to profit by borrowing a company's shares and selling them in the expectation the price will have fallen before the time comes to return them.

Iceberg has denied shorting Noble's stock or working with short sellers.

On Thursday, Muddy Waters claimed the company seemed to exist "solely to borrow and burn cash," adding that "it becomes a question of how much investors should trust Noble's management to be straight with them."

Commenting on the Muddy Waters report, analysts at UBS in Singapore said: "We believe that there is no new material information on Noble which is not already known to the market. In the near term however, lingering concerns over the company's balance sheet and accounting practices are unlikely to dissipate, in our view".

Since the Iceberg attack - which Noble claims was the work of a disgruntled ex-employee - the commodities trader has promised to make its accounting clearer and has denied that it books too much of the profit from long-term deals soon after a contract comes into force. 

However, analysts have continued to question the company's accounting policy. In a report published earlier this week GMT Research drew attention to transactions in Mongolia where it says Noble has recognised over $100m in gains for asset revaluations and long term supply agreements.

Muddy Waters' attack on Noble has echoes of its 2012 critique of Olam, Noble's fellow Singapore-listed agribusiness trader.

That attack brought the financial firepower of the Singapore state down on the short seller in the form of a rights issue backed by Temasek, the Singapore state investment agency and Olam's second-largest shareholder. However, a strategic review conducted by management after the attack conceded many of Muddy Waters' points. 

Addtional reporting by Neil Hume

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