Summary of findings:
- There are an impressive series of red flags drawn when reviewing Noble’s governance: independent directors on the board for 19 years, key shareholders and staff leaving the company, “negative assurances” taken off the website, the high number of reservations expressed by the auditor in the annual report, etc.
- Noble substantially understates both its gross and net debt, for example it omits the corporate guarantee to Agri against which new debt was raised. Noble also calculates its net debt by using cash they have no access to. We found Noble’s gross debt to be 41% higher than reported (+$1.6b), and net debt 64% higher than reported (+$2b).
- When calculating its “adjusted” net debt, Noble claims that $2.2b inventories could be used for debt repayment while there are $8.1b suppliers with exactly the same level of claim on those We explain why using inventories to repay banks and bond holders would immediately trigger Noble’s bankruptcy.
- We estimate that after adjustments, the major financial covenants are breached.
- In addition, Noble intensively engineers its level of debt at reporting date with what we believe is the help of heavy repos disguised into regular sale and purchase.
- The concept of liquidity headroom, a cornerstone of the investment grade for credit agencies, is based on a series of misconceptions that we explain.
- After impairments and using a price-to-book valuation method, we find a valuation of S$0.1 per share.
- Our conclusion summarises the comparison between Noble and Enron.
Download and print our report here: Report 3-Governance&Debtb
Iceberg Research 
A well-done piece.
They have a lot of factors going against them.
Their collateral base is not marked its fair-value.
The M-T-M seems going to the sky: It would be interesting to know really to what extent they are across the curve and what Noble is spreading across the curve. Key thing is that you need cash and credit to stay alive and realized P/L. If the B/S is structurally over-leveraged as it might appears, the trader will be exposed to unusual and unexpected circumstances (after all it’s commodity trading), triggering real losses.
Only banks working closely with the trade would know answers.
It also appears that credit agencies are rating BBB-, but its the debt is traded like Junk.
Simon
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