Noble Rejects Muddy Waters' Claims; Shares Recover Partially

Posted by Joseph Keefe April 10, 2015

Shares edge up 4 pct after Thursday's decline; Noble says Muddy Waters' claims are inaccurate.

Embattled Noble Group issued a detailed rebuttal of allegations of improper accounting and unsustainable debt made by U.S.-based short seller Muddy Waters, saying it has not misled investors and has a strong balance sheet.

"We categorically reject their allegations as inaccurate, unreliable and misleading," Noble said in a statement regarding a report from Muddy Waters released on Thursday.

The group, one of Asia's biggest commodity traders, has seen its shares slump as much as one third, or S$2.56 billion ($1.88 billion), since mid-February after little-known Iceberg Research accused it of inflating asset values by billions of dollars through aggressive accounting. Noble's bonds have also weakened.

While rejecting the claims, Noble has linked Iceberg to an employee it fired in 2013, and started legal action in Hong Kong.

Noble needs to further improve its disclosures, some analysts said after its rebuttal.

Its bonds due 2020 have fallen to 102.5 cents on the dollar from 109 before the Iceberg report.

"The bond market is telling Noble they need more transparency so we hope management will host an inter-quarter call and provide a lot more details about the trades behind these billion dollar positions on the balance sheet," independent research firm CreditSights said in a report.

In the report, analysts Andy DeVries and Charles Johnston said that though Noble won't disclose each trade, it could provide approximate volumes behind oil contango trades, the regions they are in, and exposure levels to weak coal markets where Noble has significant subsidiary investments.

Commodity trading companies such as Noble and Olam International have been easy targets for short-sellers given their opaqueness, analysts say.

Shares in Noble rose 4 percent on Friday after falling as much as 9.3 percent to a 1-1/2-year low a day earlier when Muddy Waters unveiled a short position in the company.

Muddy Waters said it will issue a full rebuttal to Noble's response. "We can already tell it will be fun," it tweeted.

While markets are punishing Noble's debt, banks are still supportive, as shown by a $2.25 billion debt refinancing launched by the company this week, some analysts said.