Trafigura is overstating the value of debt securities related to its 49.5% stake in Porto Sudeste, an iron ore export terminal in Brazil, Iceberg, headed by Arnaud Vagner, said Wednesday in a report on its website. Iceberg estimates those securities may be worth only a 10th of the $490 million carrying value that Trafigura attributes to them.
IFRS accounting rules call for a valuation that’s specific for assets with little liquidity, know as level 3, “instead of relying on a market price that could be lacking economic ground,” Trafigura said in an emailed statement. The free float of the securities in question is approximately 10% and the volume traded per day is less than $8,000, the firm said.
The report increases scrutiny on Trafigura’s accounting. While the company is closely held, it’s long been followed by hedge funds and other investors looking to profit from fluctuations in its bonds. The publication is the first time Iceberg has targeted a commodities trader since a series of reports, starting in 2015, alleging aggressive accounting at Hong Kong’s Noble Group.
The revaluation gains boosted Trafigura’s profit, while ignoring a decline in the market value of the securities and the financial uncertainty highlighted by Porto Sudeste’s auditor, Ernst & Young, Iceberg said.Vagner, a former Noble credit analyst, published the reports on Noble anonymously.
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