Noble Group

[Clement]

Personally, I think Noble is worth the risk purely based on the balance sheet data. If it defaults, and sells off all its assets, current prices are still 40% from its NAV.

The main risks of its assets come from trade receivables which may or may not be claimable. The risks of that happening, my subjective opinion, may not be as high, given that the nature of its business is now primarily in the energy sector, and its customers consists of power plants. I may be wrong.

If it defaults, I think it has pretty substantial implications to the energy sectors worldwide.

Furthermore, I believe that many of the bad news has already been priced in over the last few months. Commodities generally are in bad shape, and not in favour, which gives an opportunity to own Noble with a greater margin against its asset value.


Bought in small yesterday, for a 6 months horizon. I might be wrong for this; it's also not within my circle of competency. Just a risky attempt to be on the opposite side of the camp.

(Vested as of yesterday)

The problem is that much of Noble's NAV is in the fair value of physical forward contracts and off-take agreements with suppliers/customers. The net fair value of such contracts is approximately US$2.86 billion (Fair value gains of US$4.92 billion less fair value losses of $2.06 billion) while total group equity is US$3.32 billion.

The fact that there are fair value computations for these contracts does not imply that there is an active market for them (All of them are level 2 and 3 on fair value hierarchy). These contracts will be very difficult to offload. Therefore the carrying values for them are dependent on the going concern assumption and dependent on Noble's ability to meet the obligations on their end.

[specuvestor]

I dont think these contracts are meant to be unwound. They are meant to be held to maturity

I would be very skeptical of Noble if not for the fact that 1) PWC did an audit on their derivatives holding 2) they have been paying down their bonds on maturity

Thats not to say they are squeaky clean as their history shows that they are very opportunistic and trading oriented. But at least i think their book value is reasonably real.

Investors worried about short term debt cost or liquidity should avoid this counter as their business is mainly based on working capital and every year around this time they will surely need to sign some kind of revolver agreement. It's the nature of their business.

[Clement]

I dont think these contracts are meant to be unwound. They are meant to be held to maturity

I would be very skeptical of Noble if not for the fact that 1) PWC did an audit on their derivatives holding 2) they have been paying down their bonds on maturity

Thats not to say they are squeaky clean as their history shows that they are very opportunistic and trading oriented. But at least i think their book value is reasonably real.

Investors worried about short term debt cost or liquidity should avoid this counter as their business is mainly based on working capital and every year around this time they will surely need to sign some kind of revolver agreement. It's the nature of their business.

Hi Specuvestor,

I agree that the contracts were not meant to be unwound. I just posted that in response to discussions on whether the current price book ratio makes it a bargain. I am aware that current accounting standards permit or even encourage fixed price commodity supply contracts to be disclosed as derivatives and held at fair value, but i personally think it is ripe for abuse. Furthermore, according to the Annual Report, Noble has other commodity supply contracts which are held by its' processing arm and treated as executory contracts and not disclosed on the FS.

I view these contracts like the intangible assets of a business, like current telco subscriber contracts or current enrolled students in education providers. However, those assets are rarely shown on the balance sheets of such companies and will only get recognised on balance sheets when companies acquire them through M&A (through purchase price allocations).

[momoeagle]

Thank you Clement for your views. Indeed, book value is only a guideline and is by no means the sole reason for purchasing a share of the company.

The question is that whether the risks rewards are worth, considering that
1) It is priced at discount of 40% of book value, not good enough judgment definitely.
2) Bad news have been on it for a long time, will there be more bad news?
3) How many people are still 'confident' in this counter, after the bad news and after it has been taken out of STI?

I don't believe this company is squeaky clean too. Many companies aren't.

[specuvestor]

I dont think these contracts are meant to be unwound. They are meant to be held to maturity

I would be very skeptical of Noble if not for the fact that 1) PWC did an audit on their derivatives holding 2) they have been paying down their bonds on maturity

Thats not to say they are squeaky clean as their history shows that they are very opportunistic and trading oriented. But at least i think their book value is reasonably real.

Investors worried about short term debt cost or liquidity should avoid this counter as their business is mainly based on working capital and every year around this time they will surely need to sign some kind of revolver agreement. It's the nature of their business.

Hi Specuvestor,

I agree that the contracts were not meant to be unwound. I just posted that in response to discussions on whether the current price book ratio makes it a bargain. I am aware that current accounting standards permit or even encourage fixed price commodity supply contracts to be disclosed as derivatives and held at fair value, but i personally think it is ripe for abuse. Furthermore, according to the Annual Report, Noble has other commodity supply contracts which are held by its' processing arm and treated as executory contracts and not disclosed on the FS.

I view these contracts like the intangible assets of a business, like current telco subscriber contracts or current enrolled students in education providers. However, those assets are rarely shown on the balance sheets of such companies and will only get recognised on balance sheets when companies acquire them through M&A (through purchase price allocations).

Hi Clement

Indeed I think bio asset reval is also ripe for abuse but we can only play within the regulatory playground and strip out the dangerous games and hope not to be bitten

As per posted I think one valid point about Iceberg is the buying and selling of subsidiaries within relatively short amount of time. I think this is a valid concern which I think had probably reduced in past 18 months. The contracts on the books seemed to be shrinking as well off the top of my head, which should be expected if sales value dropping ie WC need is lessened.

[fatpudge]

fraud or manipulation in the picture?

[CityFarmer]

The new "questions" are less damaging than before...

Iceberg Research unleashes slew of questions at Noble Group ahead of its AGM

SINGAPORE (April 13): Iceberg Research, the anonymous group that took aim at Noble Group's accounting practices a year ago, has compiled and released a raft of questions on its website for the commodities firm ahead of its annual general meeting on Thursday.

A key issue raised by Iceberg is the massive financing cost for Noble's new unsecured revolving credit facility. It also mentioned a Hong Kong court's rejection of Noble's bid for summary judgement against the former employee said to be behind Iceberg in March. Yancoal, which Iceberg reckoned was overvalued on Noble's books, was yet another long-standing topic it brought up.
...
http://www.theedgemarkets.com/sg/article...ad-its-agm

[Muck]

Peabody files for bankruptcy. The blessing in disguise when noble lost the MacArthur takeover to Peabody in 2010.

http://mobile.reuters.com/article/idUSKCN0XA0E7

[BlueKelah]

Bloomberg - Coal Slump Sends Peabody Energy Into Bankruptcy http://bloom.bg/1NnJAYL

Sent from my MotoG3 using Tapatalk

[specuvestor]

But they later bought Gloucester Coal which merged into Yancoal. 是祸躲不过

Once their revolver syndicated loan is refinanced, i think the bottom had been reached