TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issu...
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Chan Yi Wen
18 June 2015
The long-running battle between beleaguered commodities trader Noble Group and its toughest critics has entered into its fifth month, with no end in sight.
Noble’s CEO Yusuf Alireza on Wednesday issued an open letter to former Temasek Holdings executive Michael Dee, refuting claims made in the latter’s memo earlier this month.
“Up to now I have chosen to ignore your ill-informed opinions. However, your recent call for the resignation of our founder and chairman is a step too far,” wrote Mr Alireza.
Besides calling for the resignation of Noble’s chairman Richard Elman, Mr Dee, in his memo addressed to Noble’s employees and shareholders, had rehashed issues that lie at the heart of the contention between Noble and its critics. These relate to Noble’s valuation of its stake in coal company Yancoal Australia, as well as its inventory repurchase agreements with banks, which critics believe may be used to slash debt levels.
Shares in Noble had plunged to six-year lows following Mr Dee’s memo before aggressive share buybacks by the company fuelled a slight recovery late last week.
Despite Noble’s latest move, critics stay sceptical. “Nothing in Noble’s letter rises to the level needed to erase my concerns,” Mr Dee said in an email to BT.
Critics are finding it especially hard to look past the sheer disparity between Yancoal’s market value of A$149.13 million (S$159.79 million) as at Wednesday, and Noble’s carrying value of US$322 million (S$433.69 million) for its 13 per cent stake.
With coal prices still under pressure, coupled with the low liquidity of Yancoal shares, Mr Alireza argued that Noble must rely on a cash-flow model that is “reasonable and consistent” with market practice in the mining industry.
Mr Dee, in response, called for Noble to release its full model for valuing Yancoal, before and after it took a sharp 40 per cent writedown in late-February. “If you are so confident of your Yancoal book value . . . let the market decide if your assumptions that it is worth 30 to 50 times the market value are realistic and if Yancoal is worth what you say.”
Robert Medd, partner at Hong Kong accounting research firm GMT Research agreed that liquidity and the tiny minority could distort market value, but he told BT that it is not the same as saying it does. “(That) also means it can be manipulated on the up as well as on the down.”
In his letter, Mr Alireza also refuted allegations of Noble having any off-balance sheet repos and maintained that the trader does not hide any debt.
What Noble does execute, on a limited basis to manage its inventory levels, are optional inventory sales, which are considered true sales according to current accounting rules and get off-balance sheet treatment, said Mr Alireza.
But Mr Dee is adamant that Noble should reveal the number of “inventory sales” that it had done in the past three years and the number of times it had not repurchased them.
“My working hypothesis is that virtually everytime you have repurchased them. In substance, they are no different from a repurchase obligation which is a liability,” Mr Dee said. “If it looks like a duck, quacks like a duck, and floats like a duck, it is not a turkey.”
Mr Medd said: “Noble appears to be downplaying its inventory management. A simple sales to inventory calculation suggests that for year 2014, they carried just four days inventory. That is impressive for a firm that moves cargoes from Latin America to China, something that can take three weeks or more, and as such, seems unlikely.”
“Furthermore, Noble’s annual report mentions extending credit to customers for 30 to 90 days. In contrast, the balance sheet shows receivables of just 16 days, suggesting they are reducing their debt by factoring their receivables. Both inventory and receivable calculations suggest that if debt were adjusted for these transactions, it would be much higher.”
Still, Noble’s latest defence has proved to be futile in boosting its stock performance. Also on Wednesday, Goldman Sachs downgraded Noble from a “buy” to a “neutral” and slashed the counter’s target price from S$1.30 to S$0.77.
Noble shares dipped 0.7 per cent to S$0.715 on Wednesday, and was the second most actively traded stock on the Singapore Exchange, with more than 73 million shares changing hands.
Just last week, OCBC Investment Research analyst Carey Wong had cut his fair value estimate for Noble from S$1.05 to S$0.61.
Goldman Sachs in its latest report said that the downgrade mainly reflects its commodity team’s “less constructive views on commodity prices which would negatively affect Noble’s profitability and cash generation from derivative assets”.
The bank had added Noble to its “buy” list in May 2012. But as at Wednesday, Noble’s counter was down 33 per cent while the Straits Times Index (STI) was up 20 per cent. “We attribute this underperformance largely to lower than expected global commodity prices,” Goldman Sachs said.
Alongside the share price weakness is a significant increase in short-sell activity for Noble in May and June. “Short-sell activity while sporadic, has averaged 20-30 per cent of total volume trade over the last two months,” said Jefferies’ equity analyst Abhijit Attavar in a recent report.
The effect, he said, is more evident when tracking the total borrow outstanding on Noble shares, which has spiked from around 50 million shares in mid-April to 400 million shares as of last week.
Short-selling occurs when shares are borrowed, and the short-sellers are motivated by the belief that the shares can be bought back at a lower price to make a profit.
On Monday, market data provider Markit issued a report, with analyst Relte Stephen Schutte stating Noble as having the largest movement of short activity on the STI, with shorting activity jumping fivefold in the wake of Iceberg’s report, and with over 7 per cent of the firm’s free float, or the number of shares held by public investors, out on loan.
“Elevated short interest is typical during times of stress for commodity traders,” Nirgunan Tiruchelvam, research director at Religare Capital Markets, told BT.