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Noble Group
Noble Group: Cost of capital and deforestation risks under priced? (Revised)

September 2, 2016
Noble Group Ltd. is a supply chain manager headquartered in Hong Kong, involved in the commodity trading of oil, coal, metals and palm oil. Five years ago, Noble group was among the 100 biggest companies in the world by revenue, generating it by purchasing physical commodities, transforming and then trading them. Since then, its shares value have decreased 90%. For the fiscal year 2015 Noble Group posted its first annual loss in twenty years, losing $1.7 billion due to significant reported impairments. These corresponded to allegations of misleading aggressive accounting overvaluing Noble Group’s commodity contracts.

Chain Reaction Research found that forecast of 2016 revenue is $46 billion, 30% below 2015, due to poor semi-annual performance and asset sell down strategy which may shave 4.5% off expected 2016 operating earnings, 18% annualized. Impairments of palm oil assets and coal receivables may reduce balance sheet equity value by $400 million, or 12%. 33% of Noble’s palm oil landbank is undevelopable as it is primary forest and possibly peat. Coal assets are said to be overvalued by 30%. Syndicate banks have been involved in the recent rights issue and are also involved in the divestment of North America Energy Solutions (NAES), suggesting a conflict of interest coupled with possible mispricing of debt and future increase in borrowing costs. Net profit outlook for 2016 and beyond is below consensus due to divestments and expectations for higher interest rate. Risks for shareholders remain.

Download as PDF: Noble Group: Cost of Capital and Deforestation Risks Under Priced? (Revised)

The Chain Newsletter

The Chain: New Research Tool May Support Banks and Investors in Assessing Their Exposure to Material Deforestation Risks in SE Asia

October 19, 2016
The United Nation’s Paris Agreement, requiring all participating countries to make GHG commitments on climate change, will enter into force on November 4th. Under the agreement, signatories provide Nationally Determined Contributions designed to reduce county level emissions and 73% of them mention reducing emissions from agriculture. It is estimated that commercial agriculture drives 71% of tropical deforestation.

Given this news, the recently launched Forests and Finance research tool may support banks and investors in assessing their exposure to material deforestation risks in SE Asia. The research tool examines 50 companies engaged in the four tropical forest-risk sectors in Southeast Asia:

  • Palm oil
  • Pulp and paper
  • Rubber
  • Timber

While not all of these companies are necessarily involved directly in deforestation, they may be engaged in other environmental and human rights issues that heighten material risk exposure.

According to the Forests and Finance research tool, banks from Europe ($9.8 billion) Malaysia ($7.7 billion), China ($6.2 billion), Japan ($4.1 billion), Indonesia ($3.9 billion), and Singapore ($3.2 billion) are the largest financiers of the 50 companies profiled. Further, since 2010, banks have provided $38 billion in loans, credit, and underwriting.

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About Us

Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.

We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.

Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.

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