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http://www.reuters.com/article/2015/04/13/us-noble-group-shareholders-iss-idUSKBN0N40ID20150413

Mon Apr 13, 2015 6:37am EDT

Proxy adviser ISS calls for Noble Group audit committee overhaul

SINGAPORE | BY ANSHUMAN DAGA

(Reuters) – Influential proxy adviser Institutional Shareholder Services (ISS) has called for major changes to Singapore-listed Noble Group’s audit committee, weeks after the commodity trader denied claims of improper accounting made by Iceberg Research.“In light of the allegations made by Iceberg, it is imperative that the company’s audit committee be comprised entirely of non-executive directors, chaired by a director who is not overcommitted so as to help restore investor confidence in the company’s auditing and financial reporting practices,” ISS said in a report.

The ISS report was issued this month ahead of Noble’s annual shareholders’ meeting due in Singapore on Friday. A copy of the report was obtained by Reuters.

While there is no current resolution to change Noble’s audit committee, ISS’s comments carry weight with institutional investors as it is the largest proxy adviser for such investors. Its recommendations can have a noticeable impact on how shareholders vote.

The proxy adviser said that though Noble had refuted Iceberg’s claims, Noble’s executive chairman and its largest shareholder, Richard Elman, is on the audit committee. It is chaired by a director who also chairs a number of audit committees and serves on seven public companies’ boards, the advisory firm said.

An external spokeswoman for Noble did not offer any comment on the ISS report, but referred Reuters to Noble’s annual report which said that Elman was a member of the audit committee given “his extensive knowledge of the operations and history of the group, and the benefits he is able to bring to discussions and deliberations on a wide range of topics considered by the committee”.

When contacted, ISS did not offer any comment beyond the report.

Noble has rejected research outfit Iceberg’s claims made in mid-February that it inflated asset values by billions of dollars through aggressive accounting. It has linked Iceberg to an employee it fired in 2013 and started legal action against him in Hong Kong.

DEBT REFINANCING

Like last year, ISS is also recommending that shareholders vote against four resolutions, including those linked to share options and equity issuance. ISS is recommending shareholders vote in favor of adopting Noble’s financial statements.

China Investment Corp, Templeton Investment, Eastspring Investments, Orbis Investment and INVESCO cumulatively own 30 percent of Noble, Thomson Reuters data, based on recent public filings, shows.

Shares in Noble, one of Asia’s biggest commodities traders, have slumped as much as a third, or S$2.56 billion ($1.87 billion), since mid-February after Iceberg’s claims and following weak quarterly results. U.S. investment research firm Muddy Waters unveiled a short position on Noble last week.

Investors are closely monitoring Noble’s $2.25 billion debt refinancing, in which 15 banks are participating as mandated lead managers and bookrunners.

Thomson Reuters Loan Pricing Corp said the first indications of market sentiment will come as early this week when Noble holds a bank presentation in Hong Kong on Monday with two more to follow in New York and London on Tuesday and Thursday, respectively.

Prospective lenders have until May 11 before they have to revert with commitments, TRLPC said.

Noble has pledged to improve transparency about its business but noted that many of its competitors were privately held and released very little public information.

April 13, 2015 4:28 pm

Noble’s chairman should not be on key committee, says proxy firm

Neil Hume, Commodities Editor

Noble Group, the trader accused of aggressive accounting practices, should make major changes to a key board committee to restore investor confidence in its financial reporting, according to an influential shareholder advisory firm.In a report issued ahead of Noble’s annual meeting on Friday, Institutional Shareholder Services called on the Hong Kong-based company to overhaul the membership of its audit committee, including by removing Richard Elman, group executive chairman and its biggest shareholder.

Shares in Noble, Asia’s largest commodities trader by revenue, have dropped more than 25 per cent since the middle of February when an unknown firm called Iceberg Research published the first of three reports criticising the Singapore listed company’s financial reporting.

Noble has also since been attacked by Muddy Waters, the US short seller, which has questioned the trader’s financial strength and governance.

“In light of Iceberg’s accusations, the company’s audit committee should be comprised entirely of non-executive [directors], chaired by a director who is not overcommitted so as to help restore investor confidence in the company’s auditing and financial reporting practices,” ISS said.

Noble’s audit committee currently comprises five members, three being independent non-executive directors, including its chairman Iain Bruce who serves on the boards of seven public companies and heads a number of audit committees.

A spokeswoman for Noble did not offer any comment on the ISS report, but pointed to the company’s annual report which said Mr Elman, group chairman, was a member of the audit committee in view of his “extensive knowledge of the operations and history of the group, and the benefits he is able to bring to discussions and deliberations on a wide range of topics”.

Two directors have been on the board for 19 years. The ‘oldest’ five directors have been on the board for an average of 15 years

– Iceberg Research

Noble’s governance was criticised by Iceberg in its third and final report, which noted that the company’s independent directors had been on board for an average of 10 years.

“Two directors have been on the board for 19 years. The ‘oldest’ five directors have been on the board for an average of 15 years,” Iceberg wrote in the report. “Either their willpower is so strong that they have extremely independent minds, or they are de facto employees.”

The company has rejected all the claims made by Iceberg and Muddy Waters, calling them variously “inaccurate” and “misleading”. It has rejected Iceberg’s allegations that it books too much of the profit from its long-term deals too quickly, and says a disgruntled ex-employee is behind Iceberg.

ISS is one the largest proxy advisers for institutional investments and its recommendations can have an impact on how shareholders vote. It said none of the allegations made by Iceberg warranted a vote against any of the 12 motions that will be put before shareholders on Friday and investors should approve the accounts and the role of Ernst & Young as auditors. However, ISS is advising investors to block four resolutions, including those linked to share options and awards.

Noble’s biggest shareholders are China Investment Corp, Templeton Investments, Orbis Investment, Eastspring Investments and Invesco. They cumulatively own 30 per cent of the company. Mr Elman owns about 21 per cent.

Noble mines, ships and finances iron ore, coal and agricultural commodities including grain, sugar, palm oil and coffee.