Noble saga: Ball is in regulators' court
A HEADLINE in The Business Times on Saturday reads: "Noble dodges accounting queries at AGM". For 90 minutes, Noble Group founder and chairman Richard Elman "repeatedly dodged shareholders' queries on the group's accounting practices ...".
How can it be that for more than two months Noble continues to refuse to provide details of its finances to the owners of the business and show such disregard for their interests?
I have long been sceptical of the finances of Asia's commodity traders as a result of their opaque finances and dependence on short-term financing.
When Iceberg Research first reported on Noble, I was intrigued enough to follow the back and forth between the two. When Noble claimed that Iceberg was led by a former Noble credit analyst, my interest was piqued. After all, a former employee in a credit department would know where the bodies were buried, so to speak.
Noble, in an attempt to discredit the source, in fact has made the source even more worth listening to. Just as compelling is the fact that it is bleeding cash flow such that dividends and buybacks are paid from borrowed funds, hardly a sustainable investment model.
At its core, Iceberg Research claims Noble vastly overstates the value of its assets and greatly understates its liabilities, all the while running up huge negative cash flows, what I call an "extinction scenario". The assets are inflated by using unexplained and secret valuation methodologies.
In the first report, Iceberg points out that Yancoal, a public company in which Noble has a 13 per cent interest, was valued on Noble's financials at an eye-popping 52 times or 5,200 per cent of the public market value of their Yancoal stake.
This is not disputed by Noble who claims some top-secret valuation methodology. However, this is accounting we are talking about, not magic or the paranormal.
Then Noble validated Iceberg and recognised a US$200 million impairment after the report was published. However, the carrying value is still in the area of 3,200 per cent or 32 times the market value.
After two months, Noble still hasn't explained that valuation gap away and has actually stopped trying. And this is only the tip of the Iceberg as they say.
Iceberg's third report raised serious questions about Noble's substantial "sale and purchase" contracts. If Noble is obliged in any way to complete the purchase after the sale then these contracts are debt obligations pure and simple. Yet they are not recorded as such. If recorded as such, total debt could be a few billion dollars higher than reported, according to Iceberg.
At the AGM on Friday, Mr Elman, Noble's 74-year-old founder, declared: "We consider the Iceberg matter finished." I say: "Not so fast."
If Noble's finances were so clear, then questioning them would have gained no traction. The same would be true if Noble had provided clear answers when the Iceberg questions arose. Alas, such was not the case, and now, 60 odd days later, after three reports and a specific list of questions from Iceberg, and a dysfunctional AGM where shareholders were cut off and questions dismissed out of hand, the owners of the business are still waiting for answers.
With their curt and dismissive performance at the AGM, Noble's leadership has raised the ante for everyone involved.
It is now time for the regulators at the Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS) to step in. They should immediately suspend the stock until all questions are fully answered by the founder, CEO, CFO, chairman of the audit committee and the EY auditors. No more claims of confidentiality, no more "specter valuation" models, no more last-minute impairments, no more denials.
Last month, Noble's CEO said: "We unfortunately live in a world where knowing that you run your business professionally is not good enough. You need to be able to prove it".
To that, I say: "There is nothing 'unfortunate' about owners demanding truth from the hired help... so prove you have been professionally managing this business."
Denial is not a response, only truth and complete transparency are acceptable. At this stage, the ball is in the regulators' court. Suspend the stock, SGX.
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