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Michael Dee: Comments On Iceberg Research’s Latest Report To Noble Group
Corporate Digest | 24 July 2015

This post is republished from a written note by Michael Dee on Iceberg Research’s update on Noble Group. Michael has been in the investment banking scene (ex Morgan Stanley CEO SE Asia, ex Senior MD of Temasek Holdings) for more than 30 years.

I have been asked for my views on the latest report by Iceberg Research. It strikes me Iceberg remains on target and clearly Noble Group (Noble) has not effectively refuted any of Iceberg’s points of substance as evidenced by their $0.67 share price despite:

  • buying over two percent of their stock and as much as 54 percent on a given day,
  • the CEO, Mr Yusuf Alireza, writing an unprecedented four page open letter of 1,500 words directly to me,
  • Mr Elman, Executive Chairman, founder, 20 percent shareholder, and member of the Audit, Renumeration and Nominating Committee declaring this matter “Finished” at the AGM,
  • a global investor road show,
  • the CEO giving many interviews to the global media,
  • announcing an “independent” committee to review the MTM valuations with PWC providing assurance, and
  • Noble’s ongoing legal harassment of Iceberg when they cannot refute his allegations.

It is now known to all who follow this situation closely that Noble has no effective credible response to these longstanding allegations which predate Iceberg.

Noble have now had about six months to respond and have failed to make an effective case to the market. Noble and their hired PR guns at Bell Pottinger sadly have not realized that there is only one option open to them…to tell the truth.

That they will not do this and address the open questions is why I continue to call for the ouster of Mr Elman from all roles and responsibilities at Noble.

I further call on the Lead Independent Director to immediately disband the “independent” review committee due to the unreconcilable inherent conflicts embedded in this committee and PWC.

All this phony independent committee has said is that PWC will provide “assurance”.

What does that really mean? If they were reviewing and providing an opinion on the actual MTM valuations they would have said so.

I conclude they will not review other than perhaps a token couple for appearance sake.

I have exactly zero confidence in PWC’s review and believe they never should have accepted this assignment; 1) given their conflict of interest with Nobles lead independent director, 2) without disclosure publicly of exactly what their scope of work is, and 3) without issuing an independent, unedited, uninfluenced report directly to the public.

PWC is being used to add credibility to a sham review and they should be ashamed of themselves.

In the Toshiba investigation one sees a model of what a real independent committee looks like and does. Their highly exhaustive report is hard hitting and credible.

The entire Noble process lacks any credibility and every single person on the committee is publicly embarrassing themselves because they are on the board of Noble and 75 percent are on the very audit committee being investigated.

PWC should resign this position immediately to avoid being in a position where they are used to provide cover for such an obviously conflicted committee which seems to have no intention of fulling reviewing all aspects of all the MTM valuations on Nobles books.

PWC should also immediately release the letter defining the scope of their work.

As I have said before the composition of this “independent” committee cannot be taken seriously as three of four already sit on the audit committee and thus are reviewing themselves.

The fourth is also on the Noble board. No matter the integrity of the individuals involved, of which I have no position, this conflict is so great as to render the outcome structurally irrelevant.

All of them should resign immediately before they put their reputations on the line for this company and management.

Shareholders, debt holders, banks, rating agencies, research analysts, Noble employees and the regulators should all demand that this committee be disbanded and a committee of outside professionals up affiliated with Noble be matched with a forensic auditing firm and and auditor with no ties to Noble to review all the assumptions and models of no less than the 100 largest MTM positions and in addition the Yancoal model both before and after the write down.

My offer stands to donate $10,000 to Singapore Special Olympics if Noble releases the full Yancoal valuation model both before and after the write down.

Go on Noble…I dare you! I invite others to match my offer and let’s make it obvious that Noble has no intention of telling shareholders, debtholders and employees the truth behind this valuation.

Mr Elman needs to go…right now. Then E&Y should be fired along with Bell Pottinger.

A new outside chairman of impeccable credentials should be brought in and the Elman cronies removed. Then a true independent committee should be established to fully determine the extent of the problem.

A white knight like CIC or Temasek has been mentioned. While they are skilled enough to make their own decision, in my personal opinion they should not touch this.

CIC has seen the value of their Noble position fall by over 50 percent and they sold one-third of that position just recently at a much higher price.

I’m sure thy regret not selling more. CIC should get all of Noble Agri out of Noble Group ASAP.

Temasek has had a terrible experience with Olam having bailed them out three times and even bid for the whole company at $2.23.

Well they got 80 percent and the stock is now at $1.76, down over 20 percent.

Both Temasek and CIC have made terrible decisions on these commodity traders and there is little hope this situation will rectify itself anytime soon.

The market is braced for the second quarter numbers as the first quarter numbers were a disaster with Noble bleeding cash and borrowing close to US$1 billion to fill the whole.

Why Noble are buying stock, paying dividends and providing capital to extremely risky ventures like X2 and Harbor Energy is beyond me.

Prudential, Orbis, Franklin, and CIC had all best join up with Nobles lenders and stop all this nonsense and denial by Noble management and get control of the helm before it is too late.

As a general matter there is not a price at which I would buy a stock when the veracity of the financial numbers remain under suspicion.

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