Noble Group

[BlueKelah]

Unfortunately most retail investors don't see downside risks of investing in commodity / commodity related counter. Commodity prices can swing very high and very low very fast.

The recent large drop in price just goes to show that some investors have not factored in the investment in yancoal and the effect on Noble's NAV, they have probably only factored in the drop in EPS from Yancoal's worsening business.

Wait for Iceberg two more reports to come out, Noble may be good value counter to invest after all this is over. Maybe Temasek can come to the rescue again

[kikababoo]

i'm not sure how typical analysts/brokerage houses value noble. IRRC mainly something along the line of P/B? (cause there's barely any earnings for past few years).

but this once again illustrates how important it is to read the financial statement fine print. i'm quite sure many who invest in noble did not bother tracking yancoal's MTM value, etc. and is surprised by iceberg's highlight of the impact of noble's associates and subsidiaries on its book value.

like what noble posted on its general announcement today (on sgx website), they have complied with ifrs (of course theres a large room for discretion and grey area, especially with associates impairment testing). and now that all eyes will be on noble on 26 feb for its results announcement, it will be quite amazing if noble avoids a major impairment writedown on yancoal.

[NTL]

For reason of hard to measure assets, I, as an amateur investor, tend to stick to investing in simple business.

Produce -> Make Profit -> Pay staff and materials -> Pay out dividends.

Of coz, I won't be able to get any spectacular returns as there are likely no hidden gems. Just 5-10% on average. Noble and Olam is out for me.

[CityFarmer]

Local chips also have their fair share of attacks...

(not vested)

MAS says reviewing statements in research report on Noble
18 Feb 2015 08:44
[SINGAPORE] The Monetary Authority of Singapore said it was reviewing a report by Iceberg Research that claimed Asian commodity trading firm Noble Group used aggressive accounting to mislead investors. "MAS will take appropriate action if there are breaches of the SFA," it said in an email to Reuters, referring to the Securities & Futures Act.

Noble, which is listed in Singapore but based in Hong Kong, has rejected the little-known research firm's allegations made in a report posted online on Sunday.

REUTERS

Source: Business Times Breaking News

[specuvestor]

Iceberg Research's point is simply that while Noble is complying with accounting rules, the outcome defies common sense. Noble is carrying Yancoal at a value that it arrived at using certain assumptions. However Yancoal recently booked asset impairments of RMB 2bn to reflect the depressed coal price environment. Noble so far has not acknowledged the implications of these writedowns.

Common sense dictates that if Yancoal itself says its assets are impaired, then the value of Yancoal must also be impaired, which then begs the question of whether the carrying value used by Noble is still valid, and if it is not, why Noble is not writing down this carrying value accordingly.

The classic case is of course Hong Leong Asia consolidating China Yuchai into their books even though they only own 20%.

Hong Leong Asia / China Yuchai is a different case because Hong Leong Asia holds a special share that allows them to appoint a majority (6 of 11) of the directors of China Yuchai, this means they effectively control China Yuchai even if they own no other shares, therefore they consolidate China Yuchai and deduct an enormous non-controlling interest in their income statement.

Noble has no such special share at Yancoal. In fact, as Iceberg points out, Noble has no say on what happens at Yancoal, otherwise the convertible notes issue would never have been announced. The convertible notes issue required all shareholders to put up money. If only Yanzhou Coal (the controlling shareholder) subscribed and converted the notes, Yanzhou Coal would have ended up with 98.8% of Yancoal, and Noble would have been diluted from 13% to 0.7%. Noble escaped dilution only because the Australian Takeovers Panel ruled that the convertible note issue was prejudicial to minority shareholders.

Associate accounting requires some measure of influence. It is not obvious what influence Noble has at Yancoal apart from a coal marketing agreement, and in any case that marketing agreement is a business matter which is unrelated to issues of corporate control.

As usual, YMMV.

My complete post here:

The classic case is of course Hong Leong Asia consolidating China Yuchai into their books even though they only own 20%.

There has to be valid reasons for them to classify as such and for reputable auditors to agree as such blatant and obvious classification. Noble's auditor E&Y should be considered above average.

That said I agree with you that volatile asset prices makes commodity counters susceptible to this kind of "asset inflation" attacks. We should also remember the bitter war in Yancoal which Yanzhou Coal is trying to privatise and marginalise the OPMI
http://in.reuters.com/article/2014/11/10...T120141110

It's not difficult to imagine a conspiracy theory here

1) I know of the special share and agree on HLA. But my point is that "There has to be valid reasons for them to classify as such ". There must be some technicality for Noble to classify Yancoal as Associate... this is not something that is obscure or hidden from the auditors.

2) As to Yancoal writedown, we know that it is controlled by Yanzhou Coal and it is trying to privatise the company, and in a rather ugly fashion (as per my link above) after failing the first time round as Noble balked. Is the write-down pessimistic to fulfill certain purpose which many seasoned investors here "understand", I'm not sure but the Noble's standard reply of "The carrying values of associates, including Yancoal, are tested for impairment using discounted cash flow models that are updated every quarter, Noble said, adding that the audit was currently underway" seemed to indicate that it is done rather regularly in quarterly fashion vs many other companies I know, and it will be tested again will show if E&Y is convinced of the DCF numbers this time round again, based on lower coal prices last quarter.

[FA+TA]

Anonymous Analysts Are Wreaking Havoc in the Asian Markets

[egghead]

Noble is no Olam.

Reply to SGX Query

[desmondxyz]

Noble is no Olam.

Reply to SGX Query

Olam also said the same thing when the short seller report came out last time, but short after that they issued new shares to temasek....

Without temasek backing, Noble is probably worse off than Olam??

[egghead]

We shall see...

[specuvestor]

^^^ Biz model of Nobel doesn't seem as robust as Olam. The former seems to be more opportunistic than biz as usual

But both share a common trait: their biz are primarily working capital driven. That means they are highly dependent on credit for their biz. That means credibility and trust is paramount.

Any doubt has potential of igniting a run. Thats the danger of a leverage business, including banks. The short sellers understand this more than they understand the business.

Yancoal is an associate not an investment, it is not required to mark to market. Impairment test is discretionary and subjective

That said, the biz model of Nobel seems far riskier than say Olam

PS u can see my discussion on Olam when it was attacked