Iceberg says PwC review fails to address market's concerns over Noble

Iceberg Research said on Wednesday that PricewaterhouseCoopers (PwC) has not challenged the realism of the assumptions made by Noble Group, but instead merely reiterated that the commodities group was in compliance with accounting standards.

"EY has answered the same question for years. Enron was largely in compliance with accounting rules. The PwC review fails to address the market's concerns. Investors want to know the real value of these MTM, not whether Noble successfully exploits accounting loopholes,'' said Iceberg.

The little known research group Noble accused of being linked to one of its former employees also took issue with the sentences which it described as "remarkable" even by auditors standards. These included:

* "This report may not be relied on by you" (underlined)

* "Management is responsible for the measurement of the individual valuations and the overall valuation of the Contracts."

* "Our review of the valuation models was based on the Excel spreadsheet outputs produced by the Finance (valuation and product control) team." PwC has not worked directly with the contracts.

* "None of the contracts was a liability". PwC has not reviewed the negative MTM, which are future cash outflows.

With regards to Yancoal, Iceberg demanded that Noble's management explain why a stake worth US$12 million on the Australian exchange should be valued US$322 million on its balance sheet, down from US$522 million previously.

"They will do this for Yancoal. Then they will have to do it for every major MTM on the balance sheet,'' said Iceberg, unhappy over the poor disclosures over the forward curves and other key assumptions related to Yancoal.

On Wednesday, Noble shares were trading around S$0.505 each, down S$0.065, or 11.40 per cent. More than 126 million shares were traded.

Noble had engaged PwC to review the valuation of its contracts. PwC scrutinised 12 areas using 35 relevant criteria covering volumes, price, discount rates and reserves. The "relevant criteria" that it used were developed by Noble's management based on relevant requirements of fair value measurement under International Financial Reporting Standards (IFRS 13) and standard practices for deriving mark-to-market (MTM) valuations.

In its review, PwC said "Noble has adopted an approach to valuations which is consistent with the relevant criteria in all material respects".