Muddy Waters strikes again with fresh attack on Noble

Investor confidence hit as short-seller queries commodities trader's deals

INVESTOR confidence in Singapore-listed Noble Group has been hit again after a US short-seller joined the attack on the commodities trader with fresh criticism of its finances and management.

This comes nearly two months after anonymous group Iceberg Research spotlighted Noble's alleged accounting malpractices.

But unlike Iceberg, which portrayed itself as a whistle-blower, Muddy Waters said it has taken a short position on Noble shares. This means it is betting Noble's share price will fall. The firm mounted a similar attack on another commodities trader here, Olam International, in 2012. Short-selling refers to the selling of shares one does not own, with the aim of buying them later at a lower price and making a profit.

Noble's shares fell as much as 9 per cent yesterday after Muddy Waters put out a 14-page report questioning several of the trader's past deals and its accounting. Its unusual share price movement prompted a trading query yesterday from the Singapore Exchange (SGX), which noted that this was the second issued in two months.

Noble clawed back some ground, closing at 86 cents, down 5.5 per cent or five cents on the day. It was among the most actively traded yesterday, with 132.6 million shares changing hands.

The firm told the SGX yesterday that it "completely rejects the allegations" made by Muddy Waters and that it is "studying the report in detail".

Muddy Waters said Noble "seems to exist solely to borrow and burn cash", and alleged that its 2011 acquisition of Indonesian coal-mining service firm PT Alhasanie was aimed at cutting a quarterly loss that year.

"When we scratched the surface of (the PT Alhasanie) transaction, we found numerous red flags and aggressive actions by Noble," founder Carson Block said. For instance, Noble paid US$300,000 (S$406,600) for PT Alhasanie and immediately booked a gain of over US$46 million, he said. The deal showed "Noble management manipulates financials and investors when the pressure is on".

"PT Alhasanie seems to be a premeditated chain of sham transactions that not only unjustifiably pumped up net income by US$46.7 million," he said. "Management has failed to adequately respond to the criticism, which we strongly suspect is because transparency could negatively impact Noble's credit rating."

He added: "It becomes a question of how much investors should trust Noble's management to be straight with them. Noble's management has adamantly insisted that its accounting is conservative and, by implication, is reflective of reality. We do not believe Noble's management."

Noble shares have dived 29 per cent since mid-February when Iceberg released the first of three reports. In its third report, it claimed Noble had substantially understated its debt.

Noble has repeatedly denied the claims, blaming a "disgruntled" former employee for the reports. It sued Hong Kong resident Arnaud Vagner and Seychelles firm Enlighten Ace, among others, in Hong Kong on March 23 for "conspiracy to injure" Noble.

But Muddy Waters noted: "With a company as complex and opaque as Noble, there is no way for investors to definitively answer certain key questions."

gleong@sph.com.sg