Business

Noble shares fall on report by short-seller Muddy Waters

Screen grab of Noble Group website
Image caption Noble Group is Asia's biggest commodity trading company based on revenues

Shares in Asian commodity-trading giant Noble have tumbled after its accounting practices were questioned in a report by US short-seller Muddy Waters.

The Singapore-listed firm lost as much as 9.3% on Thursday after Muddy Waters alleged Noble "seems to exist solely to borrow and burn cash".

The attack come on the heels of a series of critical reports by anonymous "whistleblower" Iceberg Research.

Noble said in a statement it "completely rejects the allegations".

"Muddy Waters Research has publicly stated that it has taken a short position in Noble Group's shares," the company said.

Short-sellers look to profit by selling stock borrowed from shareholders on the expectation the price will fall. They then repurchase the securities at the lower price and return them.

Noble, which is Asia's biggest commodity trader by sales, added that it is "studying the report in detail".

The company has also started taking steps to address its debt levels. On Wednesday it announced a new $2.25bn (£1.5bn) unsecured revolving loan facility to refinance existing debt.

Market reaction

Muddy Waters' 14-page report questions Noble's cash flow and management.

"With a company as complex and opaque as Noble, there is no way for investors to definitively answer certain key questions," it wrote.

Analysts' reaction to the new report were mixed.

Nicholas Teo from CMC Markets told the BBC that the "allegations are pretty consistent with Iceberg's earlier reports".

But "Muddy Waters has or may have a commercial interest here in seeing lower stock prices," he said.

"I feel that the biggest consequence to all these allegations may not be the falling stock price, but instead the risk of repercussions that may arise from the creditors to Noble's business."

"The allegations should not detract from the fundamental value of this vast and diverse company," said Nirgunan Tiruchelvam from Religare Capital Markets in Singapore.

Iceberg Research

Noble has been embroiled with Iceberg Research, a previously unknown firm which has released three critical reports against the company.

Noble's share price has lost as much as 29% its value since the first report from Iceberg Research was published on the blogging service Wordpress in mid-February.

Two weeks ago, Noble sued Iceberg Research for "conspiracy to injure" the company by "anonymously spreading false and misleading information".

In a lawsuit filed in Hong Kong, Noble is seeking damages and if successful, will want an injunction preventing the publication of any further criticism.

They also named a former employee, Arnaud Vagner, as the person they believe to be behind Iceberg Research.

Mr Vagner used to work as a credit analyst at Noble, but was fired in June 2013.

Iceberg has repeatedly refused to identify those behind it, but maintains it is a "whistleblower", since it makes no money from its allegations.

In an email to the BBC, Iceberg said there was "no concern at all" over the legal action it is facing.

"The only thing that matters is whether our arguments are correct or not."

Olam attack

Image copyright AFP
Image caption Sunny Verghese, chief executive of Olam International battled US short seller Muddy Waters in 2012

Muddy Waters, and its founder Carson Block, became well-known several years ago for shorting Chinese companies over their accounting practices.

It made a high-profile attack against Chinese plantation firm Sino-Forest in 2011, which after an inquiry, resulted in the company filing for bankruptcy.

In late 2012, Muddy Waters targeted Singapore-based agricultural commodities trader Olam International, claiming it was "close to financial failure".

The allegations caused Olam, one of the world's biggest traders of rice, coffee and cocoa, to lose more than a quarter of its market value in a month.

Olam denied all the claims and later took legal action against Mr Block. However, the firm also undertook a strategic review and looked to shore up its balance sheet.

Olam received a boost after a group of shareholders led by Singapore state investment fund Temasek paid more than $2bn in cash for remaining shares in the company.

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