Noble Group faces criticism over cheap agri stake sale

It will be tough to boost investor confidence.

Embattled commodity trader Noble Group has sold its 49% stake in its agribusiness segment to Chinese state-owned enterprise COFCO for US$750m. Although the move is intended to boost investor confidence and strengthen its balance sheet, analysts caution that the relatively cheap sale might instead result in more criticism from Noble’s detractors.

According to DBS, Noble Agri’s stated book value is US$1.3 billion. After announcing the deal, Noble disclosed that it will book a non-cash loss of around US$546m due to the difference between the carrying value of Noble Agri and sale consideration.

“We believe its critics will use this transaction to reiterate their view that Noble has overstated the value of its assets on its balance sheet. In our view, this would likely cause further volatility in Noble’s share price,” said DBS.

In fact, Noble’s main detractor Iceberg Research issued a statement in December claiming that Noble Agri’s small price tag reveals the deception behind Noble’s accounting policies.

“COFCO would buy 49% of Agri for $700-$750m. This compares with the $1.46b that COFCO already paid for 51% of Agri. A simple conclusion would be that the valuation of Agri collapsed by half in one year. For COFCO, it is easier to properly value Agri now that Noble is not in charge anymore. However, an important reason behind this drop is that the accounting game that Noble played one year ago is now fully exposed,” Iceberg Research said.

Adding insult to injury is Moody’s decision to downgrade Noble’s bonds to junk status, citing persistent liquidity and profitability concerns despite the stake sale.

“On the unexpected decision by Moody’s to downgrade Noble’s investment grade rating, this may make it incrementally harder for Noble to access liquidity and/or bond markets. However, the full impact is still uncertain as S&P and Fitch have maintained their current investment grade rating on Noble. We are positive on the disposal of Noble Agri as it strengthens Noble's balance sheet and increases the likelihood of the group retaining its investment grade rating with S&P and Fitch,” DBS said.