Noble pledges to improve financial transparency

Noble Group, the trader under scrutiny for alleged aggressive accounting tactics, has moved to reassure investors by pledging increased disclosure in its first-quarter results and giving details on commodity-backed financing.

Shares in Noble, Asia's largest commodity trader by revenue, have dropped more than 25 per cent since the middle of February when an unknown group called Iceberg Research published the first of three reports criticising the Singapore-listed company's financial reporting.

The company, which is based in Hong Kong but listed in Singapore, has since been attacked by Muddy Waters, the US short seller, which has questioned the trader's financial strength and governance.

On Wednesday Reuters reported that oil price agency Platts has temporarily stopped the company taking part in some of the trading processes used to set global oil benchmarks.

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

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.

Noble said it was considering showing investors gains and losses by region and by commodity in its first-quarter results, due on May 7.

The trader said it would also provide updated disclosures for other Noble businesses after China's state-backed grain traderCofco bought a majority stake in its Noble Agri operation.

"The nature, format and frequency of the disclosures are being carefully considered to ensure that increased transparency is provided but commercial sensitivity is respected," Noble said.

Noble also offered greater disclosure on its valuation of its stake in Yancoal, the Australian subsidiary of Yanzhou Coal Mining, China's largest coal company. It said its $322.25m valuation was reached after taking impairments on lower coal prices and using foreign exchange projections that are more conservative than most brokers'.

Iceberg Research said Noble overvalued Yancoal on its balance sheet by classifying it as an associate rather than as a long-term investment, and then applying a valuation method based on "stratospheric" cash flow projections.

Noble also disclosed how it used inventories to raise finance. The company said it regularly carried out "inventory sales", whereby it sells commodities to a bank with an option to repurchase. Noble said inventory sales were different from a sale and repurchase agreement, as the commodities trader had no obligation under the deal to buy the commodities back.

Disclosure of such agreements is not required under normal international accounting standards, Noble said.

Speaking at the Financial Times Commodities Global Summit on Tuesday, Yusuf Alireza, Noble chief executive, said the company was committed to increasing disclosure of information to avoid a repeat of investor attacks. Providing more transparency is the "lesser of the two evils" even if it costs the company a competitive advantage, he said.

However, Reuters' report that oil price assessment agency Platts has blocked Noble from making original bids and offers in the trading window used to set global oil price benchmarks illustrates how the accounting questions could hurt confidence in the company. Noble will still be allowed to accept other companies' bids and offers in the Platts trading window.

Both Platts and Noble declined to comment on the report.

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