pwc says nobles valuation procedures are in line with rules and industry practices 1005222015

The PwC report fails to address the market’s concerns, alleges Iceberg

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By :  ,  Financial Analyst

In what must be a shot in the arm for beleaguered commodities trader Noble Group Limited (SGX:N21), accounting major PricewaterhouseCoopers (PwC), in its independent review, gave a clean tick of health to the company’s mark-to-market valuation procedures for long-term commodity derivative contracts.

PwC said in its review report that the individual valuations and the overall valuation of contracts included in the company’s consolidated balance sheet as on June 30, 2015, “complied with relevant accounting rules and industry practices,” according to Business Times.

PwC was appointed by Noble to review its valuation practices after they were criticised by shadowy research group Iceberg Research and short trader Muddy Waters. The resulting controversy took a severe toll on Noble’s share price, which fell nearly 50 per cent to touch SG$0.58 as at the close of trading last Thursday.

PwC’s review covered 81 per cent of the value of Noble Group’s derivative contracts with the majority at over two years, or 98 per cent of its Level3 or illiquid net assets, according to the Straits Times. This equates to US$2.6 billion (SG$3.6 billion) of net fair value gains on commodity contracts and derivative financial instruments as at June 30.

"Overall, we note that Noble has adopted an approach to valuations which is consistent with the relevant criteria in all material respects," PwC said in its report. "Indeed, in some aspects of the model construction (such as the development of discount rates and development of counterparty credit risk curves), Noble has an approach which is more sophisticated than that of many non-financial companies,"

Noble published PwC’s entire report after it had been reviewed by the board.

However, Iceberg Research charged that PwC’s review would fail to answer the markets concerns and that it “did not challenge the realism of Noble’s assumptions for its mark-to-market.”

Noble Chief executive Yusuf Alireza lashed back at Iceberg’s statement, saying: "Any credible market participant who takes the time to read (the report) cannot conclude what this market manipulator or blogger is (saying). We don't run our business for market manipulators, we run our business for our investors."

The Singapore Exchange said it was closely monitoring developments relating to Noble, including market activity. It recommended that any investors having questions on the company's MTM valuation practices may clarify them with the company at its Investor Day on August 17.


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