Great article in The Financial Times about Noble Group (I wrote several articles about them in the past):
Commodities: Noble’s House of woe
Today the market value of the company — which is listed in Singapore — has collapsed to $1.1bn, its chief executive has left, and Mr Elman, 76, has announced he will step down as executive chairman in the next 12 months. In February, it reported annual losses for the first time in more than 20 years after taking $1.2bn in writedowns and charges, largely related to the value of long-term contracts it has been accused of overstating by short sellers, hedge funds and a former employee turned financial blogger.
Noble, which acts as a middleman for oil, coal, iron ore and metals deals, is now tapping its shareholders for $500m of cash and trying to sell prized assets in its efforts to pay down debt and free up capital for its trading operations.
“Noble compounded its problems with aggressive accounting,” says Craig Pirrong, a finance professor at the University of Houston who has written on the industry for Trafigura. “The accounting issues took a big toll on management’s credibility, and that made it very difficult to climb out of the hole.”
Mounting debts and high costs began to weigh on the company as bets in niche markets such as carbon credits backfired. As a listed company, it wanted smoother earnings to keep the stock market happy, former employees say.
Noble did this by recognising upfront a portion of gains from long-term marketing and supply agreements and recording their value on its balance sheet, say ex-employees. This technique, while legal under accounting rules, has seen only limited use among Noble’s rivals who say it is risky because the volatility of commodity prices means the amount of cash eventually received from the deals can be lower than the recorded profits.
Noble's 5-year price chart: