Noble saga: Ball is in regulators’ court; Noble’s AGM raises further concern; Noble AGM: shareholders may not be so supportive next time; Chairmen should take shareholder questions in the spirit of the law

Noble saga: Ball is in regulators’ court

Michael Dee

21 April 2015

Business Times Singapore

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.

* The writer is an investment banker. He is a former senior managing director at Temasek Holdings and a former CEO for Southeast Asia at Morgan Stanley & Co


* Noble’s AGM raises further concern

* Noble AGM: shareholders may not be so supportive next time

* Chairmen should take shareholder questions in the spirit of the law


Noble’s AGM raises further concern

Chairman’s reluctance to address issues triggers responses from Iceberg Research and SIAS


Whither Noble?

21 Apr5:50 AM


NOBLE Group’s annual general meeting (AGM) last Friday was an opportunity for the beleaguered commodity trader to address the serious issues raised by Iceberg Research and Muddy Waters, but the way it tried to rebuff shareholders’ queries has raised further concern.

BT had earlier reported that Noble’s chairman and its largest shareholder, Richard Elman, 74, had repeatedly dodged shareholders’ queries on the group’s accounting practices, instead steering the AGM’s focus to the resolutions on Noble’s financial statements and the reports of its directors and auditors.

This met with objections from some of its shareholders, who felt that the management was too defensive.

On Monday, it also triggered responses from Iceberg Research, which has since mid-February been launching several attacks on Noble’s accounting practices, as well as local investors’ watchdog, the Securities Investors Association Singapore (SIAS).

Iceberg said that Mr Elman’s responses to shareholders reveal “insecurity and arrogance”.

“In these amazing exchanges between a chairman and his own shareholders, we see that Richard Elman thinks he does not answer to anyone, not even to his own shareholders,” Iceberg said in a statement.

At Friday’s AGM, when Noble shareholder and veteran investor Mano Sabnani urged the group’s management to elaborate on how it values its stake in Australian coal associate Yancoal – a key feature in Iceberg’s attacks – Mr Elman tried to sidestep the issue. It was under further pressure from Mr Sabnani that Mr Elman eventually relented to answering the Yancoal question.

Iceberg said the AGM could have been the opportunity to be more transparent. Instead, “the man who has always been the real boss of Noble, showed his true colours”.

In response to Iceberg’s comments, a Noble spokesman told BT: “We received the overwhelming support of our shareholders and the Iceberg issue is now finished. Our focus is firmly on running the business to achieve our goal of becoming the leading mover of physical commodities in the world.”

Meanwhile, SIAS president and CEO David Gerald said that Mr Elman could have given comfort to the anxious shareholders by answering in a manner, even briefly, acceptable to them.

“Much disappointment and anxiety could have been avoided by the chairman hearing out the shareholders. Shutting up the shareholders instead, only creates acrimony.”

SIAS will be seeking clarification from Noble as to whether the concerns of shareholders as expressed in the media are correct and if so, why it happened.

Since Feb 15, the day Iceberg launched its first attack, Noble’s counter has plunged about 27 per cent to S$0.885, despite an aggressive share purchase programme led by its management.

In the wake of recent events, analysts remain largely bullish on Noble. Of the 16 analysts covering the stock, 10 have a “buy” call while six recommend a “hold”.

DBS Research released a report on Monday, which stated: “The stock shows firm resilience at 85 cents despite the recent allegations by Iceberg Research and Muddy Waters. From a technical perspective, we advocate accumulating the stock at its current level that is slightly above 85 cents.”

On Monday, Noble also announced that its wholly-owned subsidiary, Noble Americas Corp, has acquired the equity interest in the issued unit capital of a Delaware company, MR Coal Marketing & Trading, for US$23.9 million. The commodity trader also announced that it had increased its stake in Australian company Crawley Resources Ltd from 70 per cent to 100 per cent.

Noble AGM: shareholders may not be so supportive next time

21 April 2015

Business Times Singapore

I REFER to “Noble dodges accounting queries at AGM” and “Sound bites from Elman” (BT, April 18-19).

This was a huge opportunity for the company to clarify what to me are legitimate questions that have been raised about its accounting, business model and corporate governance. Sadly, based on the reports of what transpired at the meeting, the company quashed the opportunity.

Questions about the accounting treatment and valuation of Yancoal are clearly related to the first resolution on the adoption of the audited financial statements. According to reports, the chairman was reluctant to address these questions. Perhaps he has been advised by the company’s legal advisers not to address these questions, and in that case, he could have said so.

Under the Code of Corporate Governance, the external auditors should be present “to address shareholders’ queries about the conduct of audit and the preparation and content of the auditors’ report”. Perhaps shareholders should also have directed their questions to the external auditors, given that the external auditors are supposed to report to the “members of the company” and provide their independent opinion about the financial statements. Shareholders attending AGMs of companies should consider directing questions about the external audit at the external auditors, not just direct questions about the financial statements at the board and management.

The reports also mentioned that a shareholder had raised questions about the contributions of two independent directors who were proposed for re-election. In the notice of the AGM, Noble merely stated that one of these two independent directors will remain on the audit committee and continue to be independent after re-election, while it was silent on the other independent director. It is entirely appropriate for shareholders to ask why certain directors are proposed for election or re-election and what value they will add to the board and the company – especially when a company has failed to provide sufficient details for informed voting by shareholders. It is surprising that the chairman thought that the AGM was not an appropriate forum to raise issues about the contributions of directors and only allowed for this when pressed.

The Code recommends that “the chairman of the audit committee, nominating committee and remuneration committee should be present and available to address shareholders’ queries at these (general) meetings”. Questions about the financial statements and the appointment of directors are more appropriately dealt with by the chairman of the audit committee and nominating committee respectively. This is especially important for a company such as Noble where the chairman is an executive director and therefore part of management.

In the 2014 annual report, Noble stated that it has “adhered to the principles and guidelines set out in the . . . Code of Corporate Governance 2012 . . . save as disclosed . . . in relation to areas of deviation from the Code”.

Under “Shareholder communications”, the company states: “The Board welcomes the views of shareholders on matters affecting the Company, whether at shareholders’ meetings or on an ad hoc basis.” This is line with the Code which states that “companies should encourage shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company”.

However, it appears that the company is only prepared – and apparently with reluctance – to answer questions directly relating to the resolutions and takes a rather technical approach to determining what are legitimate questions. It would seem that Noble will need to review its corporate governance section for its next annual report and state more clearly that it only allows shareholders to ask questions on matters relating to the resolutions at general meetings based on the chairman’s interpretations as to what are legitimate questions. Otherwise, its corporate governance section would not accurately reflect how the company communicates with shareholders.

Finally, the company should not feel smug about the high level of shareholder support for the resolutions. Given that many shareholders probably voted in advance and the reports that have now come out as to what transpired at the AGM, perhaps they may not be so supportive the next time. Hopefully, proxy advisers, fund managers and institutional investors will carefully consider whether the company has been sufficiently transparent about its corporate governance – including why certain directors are proposed for election or re-election – and what transpired at the AGM, when making their voting recommendations and decisions the next time.

Mak Yuen Teen


Chairmen should take shareholder questions in the spirit of the law

21 April 2015

Business Times Singapore

MINORITY shareholders attending Noble Group’s annual general meeting (AGM) were disappointed with chairman Richard Elman’s handling of questions. SIAS has received feedback that the chairman was unnecessarily defensive, “in denial mode” as reported in BT, April 18-19. SIAS is concerned about these disturbing reports. We will be seeking clarification from the company shortly as to whether the concerns of shareholders as expressed in the media are correct and if so, why it happened.

Chairmen of meetings must understand that while it is true that the AGM is a statutory meeting and limited by time within a set agenda, they can still address the serious concerns of minority shareholders and not sidestep them. In the case of Noble, it has been under attack from Iceberg and Muddy Waters. The concerns of shareholders were heightened by what these research reports revealed. The chairman could have given comfort to anxious shareholders by answering, even briefly, in a manner acceptable to them. Much disappointment and anxiety could have been avoided by the chairman hearing out the shareholders. Instead, shutting them up only creates acrimony. It is not good to stick to the letter of the law at meetings but it is good to take questions from shareholders in the spirit of the law. Shareholders are quite educated and discerning nowadays and they must not be taken for granted. Where time doesn’t permit, Noble could follow the example of other enlightened listed companies by arranging after the AGM for a closed-door dialogue session or meet shareholders immediately after the AGM at the reception and have an informal chat. Chairman and directors of meetings need to adopt a friendly and willing attitude towards their shareholders who are, after all, owners of the company. Where they cannot accommodate the questions, they can always be firm but polite.

Where a chairman finds it difficult to answer questions because of legal constraints, it must be clearly explained. New directors to be appointed to the board, like in New Zealand and Australia, must address shareholders briefly on the value they bring to the board and the company to satisfy shareholders of their eligibility. This practice is prevalent at some of the bluechip company AGMs in Singapore.

David Gerald

Founder, president & CEO

Securities Investors Association (Singapore)


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