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Embattled Noble Group flags potential suitors; says has ample funds on hand

SINGAPORE (Reuters) – Noble Group, Asia’s biggest commodity trader, flagged potential support from strategic investors as it stepped up its campaign to reverse a dramatic plunge in its share price on concerns about its accounting practices.

The Singapore-listed company said it had enough funds on hand to finance its operations, refuting rumours it would be unable to fund the redemption of a $735 million bond due this week. It will also bring forward the release of its second-quarter results and a PwC review of its accounting practices to next Monday.

The detailed statement helped its shares jump 7 percent, putting a floor under the stock but failing to assuage concerns that have dogged it since mid-February when Iceberg Research accused it of inflating assets by billions of dollars.

Despite Noble’s rejection of those claims and later accusations by others including short-seller Muddy Waters, the stock remains some 60 percent below levels seen before the crisis erupted – a loss of $3.6 billion in market value. Its shares fell nearly 30 percent just last week.

Hong Kong-headquartered Noble offered few details about potential suitors, saying only that management had been approached by a number of parties about potential financing and/or investment options and that there was no guarantee of a deal in the near future.

“If they get an investor, that will be quite a positive thing for them. But it depends on how big a stake they can take and at what price,” said Wei Bin, analyst at MayBank Kim Eng Research.

Bankers have said Chinese and Japanese firms that are looking to increase their pricing power in the commodities industry could be interested in firms like Noble, which trades commodities such as coal, iron ore and oil.

But they added that potential investors would be cautious until questions over accounting practices are resolved.

“Any investor that comes in today would have to do quite a bit of due diligence. They are investing in a falling knife,” said a Singapore-based banker, declining to be identified due to the sensitivity of the issue.

WORST OVER?

Noble said that even after this week’s redemption of bonds, it would have readily available cash of well over $1 billion, adding that it has $15 billion in bank lines.

It also said that contrary to allegations it needed to increasingly depend on fair value gains for profitability, second-quarter fair value gains fell, while operating income and profits remained positive.

Deutsche Bank noted in a research note that bringing forward its earnings results by three days would allow Noble to resume share buybacks to support its stock. Singapore rules bans buybacks in the two weeks prior to earnings announcements.

“They have done what they can do, but I don’t think the worst is over,” said Maybank Kim Eng’s Wei, adding that its results, the PwC report and doubts about whether the company can retain an investment grade credit rating remained key risks.

Standard & Poor’s, which rates Noble’s credit at BBB-minus, its lowest investment grade, cut its outlook to negative in June, citing concerns over Noble’s valuations of long-term supply contracts.

With revenues of $86 billion last year, Noble is one of Asia’s largest companies to find itself in a reputational battle over accounts. Founder and Chairman Richard Elman owns about a fifth of its shares while sovereign wealth fund China Investment Corp owns about 9 percent.

The Singapore Exchange, which issued a “trade with caution” note on Noble last week, said it was ready to take action against any market misconduct including any suspected manipulation. ($1 = 1.3756 Singapore dollars) (Reporting by Rujun Shen and Anshuman Daga; Additional reporting by Umesh Desai; Editing by Edwina Gibbs)

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