Goldilocks Investment finds Noble's figures 'shocking'

It questions why adjustments were not made earlier and the timing of profit warning

A major investor in Noble Group said it is shocked at the firm's profit warning and stirred up questions over the timing of the commodity trader's impairments.

Noble, which releases fourth-quarter and full-year results today, warned last week that it is expecting a fourth-quarter net loss of US$1.7 billion (S$2.24 billion) to US$1.9 billion. That could bring the full-year loss to around US$4.8 billion to US$5 billion.

Goldilocks Investment Company said in a note yesterday: "These figures are extremely shocking."

It noted that Noble's estimated non-cash net losses alone represent a 50 per cent increase on top of the cumulative US$3.051 billion net losses it has already booked for the first nine months of 2017.

Furthermore, about US$0.9 billion to US$1 billion of the US$1.45 billion to US$1.55 billion non-cash net losses were attributed by Noble to increases in the discount rate used to value its mark-to-market derivatives portfolio.

Goldilocks said: "This seems to suggest that Noble has consistently overstated the value of its derivative contracts over this financial year.

"It also leads one to question why these adjustments were not made earlier, given that Noble has already revised its valuation approach to its commodity contracts and derivative instruments on several occasions in 2017."

Goldilocks added that the timing of the release - less than one month after it unveiled its proposed restructuring plan - leads one to suspect that Noble's management may be deliberately releasing "exceptional" losses to pressure stakeholders to approve the plan.

The profit warning also shows that the remaining business is "still haemorrhaging cash", it said, questioning why the management should then be rewarded with up to 20 per cent shareholding in the restructured company.

Mr Alex Turnbull, managing partner of Keshik Capital, said the recent loss is "somewhat suspect". He said: "It is very common practice when trying to do a restructuring to mark down the value of assets so you can claim before a court that certain equity holders and creditors should not have a vote because they have already been wiped out.

"Normally this would require audited accounts, which the company does not have at this time for this recent write-down."

Mr Craig Pirrong, a finance professor at Houston University, said the additional US$1 billion loss due to the discount rate change is "particularly shocking". He said: "Did they all of a sudden come to the realisation that they'd been discounting inappropriately? That strains credulity past the breaking point, especially since valuation of these contracts has been the main issue for months now."

Noble shares closed 0.2 cent down at 17.7 cents yesterday.

•Additional reporting by Rachel Mui

A version of this article appeared in the print edition of The Straits Times on February 28, 2018, with the headline 'Goldilocks Investment finds Noble's figures 'shocking''. Print Edition | Subscribe