Click here to subscribe to the latest updates from Chain Reaction Research
Noble Group: Cost of capital and deforestation risks under priced?
August 25, 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.
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 peat – its present deforestation is illegal. 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.
Moody’s maintains negative outlook on IOI while IOI’s Q2 2016 earnings negative
Moody’s announced that it is reverting IOI Corporation’s (IOI:MK) credit outlook as “negative” following the lifting of its suspension by the Roundtable of Sustainable Palm Oil (RSPO). Moody’s issuer rating of IOI is still Baa2, the second lowest investment grade granted by Moody’s.
Moody’s stated that the “negative” outlook was issued because 27 of IOI’s large corporate customers have suspended relationships with IOI due to their illegal deforestation practices. Moody’s also mentioned that the “negative” outlook was granted because IOI faces further potential suspension from RSPO over illegal deforestation and land-grabbing.
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.