By Anshuman Daga
SINGAPORE (Reuters) - Noble Group Ltd's (SI:NOBG) hiring of a second auditor to review its accounts marked a change of heart for a company that has defended its accounting practices for months, but its top brass felt compelled to draw a line under the problem, according to a person with direct knowledge of the matter.
Hit by a critical report in February from little known Iceberg Research and later echoed by short-seller Muddy Waters and others, the board of Asia's biggest commodity trader became convinced that detailed rebuttals and reassuring words were not enough to soothe market qualms.
Noble, accused of inflating assets by billions of dollars, faced two main choices: get a new Big Four auditor or find an investor to buy a stake in its commodity assets at a price that would validate its accounting methods, the person said. The company chose the less complicated option.
"This is really the way of just saying, 'enough is enough, put a line behind this'," he told Reuters.
With sales of $86 billion last year, Singapore-listed Noble is one of Asia's largest firms to find itself in a reputational battle over accounts where consequences can be long-lasting.
Noble has lost 43 percent of its market value or $2.6 billion since Iceberg's report. Commodity trader Olam International Ltd (SI:OLAM), whose accounts were attacked in 2012, was bought out last year by a consortium led by Singapore state investor Temasek Holdings (TEM.UL).
Noble's CEO Yusuf Alireza told a board meeting last month he was spending 40 percent of his time reassuring stakeholders and he wanted to return to running the business full-time, the person said.
His remarks to the board came amid a slump in commodity prices and after Standard & Poor's cut Noble's credit rating outlook to negative, citing concerns about valuations of long-term contracts.
The person declined to be identified as the board discussions were confidential. It was not clear from the person's comments how much the board debated either option.
The company has said its board recommended a third-party review and a new committee of four independent board members appointed PricewaterhouseCoopers (PwC) to review valuations of some of its assets - work previously audited by Ernst & Young.
Asked to respond for this article, a company spokesman said Noble has complete confidence in its accounting and is supported by key stakeholders.
Singapore Exchange, which is the markets regulator as well as the bourse operator, welcomed the external review, noting it had been in close contact with Noble. People familiar with matter said consultations with the exchange on accounting disclosures had lasted months.
WILL IT WORK?
Noble expects the PwC review will take weeks and not months but whether it successfully draws a line under the issue remains to be seen. The stock has fallen, along with other commodity traders, since the announcement.
Some in the market remain skeptical.
"Are we really to believe they will be willing to accept any other finding than one which supports what decisions and policies they themselves have done?" said Michael Dee, an independent investor and former senior managing director at Temasek.
Dee, who does not hold shares in Noble, has criticized Noble for its response to Iceberg and written a public letter to the company's employees, calling for the resignation of chairman and founder Richard Elman. That in turn has prompted a detailed response from the company accusing him of "inaccurate opinions".
Others believe the PwC move makes sense, saying the hire would never have happened if management was anything less than 100 percent confident in their models and valuations.
"If the PwC report comes back clean it will refute the main point of the short sellers and leave them essentially nothing left to go after Noble management with," said CreditSights analyst Andrew DeVries.
