Noble Group’s chairman, Mr. Elman, recently declared “Last year, we had to separate our business from rumour and gossip”. In April, our reports were already described as “inaccurate, unreliable and misleading”, and Mr. Elman proclaimed that the “Iceberg issue is finished”. After months of denial and defiant tone, the market does not pay attention anymore. Noble’s securities are plunging with no end in sight. The share price is down 77% since our first report and the bonds trade at distressed levels, 46 cents on the dollar. Financial markets and Noble’s management live in two parallel universes.

We are preparing a fourth report on Noble. Before we publish it, we wanted to give the current status of our main arguments on Noble’s accounting, as presented in the three previous reports. Almost all our arguments are already facts recognised by the market, but also recognised by Noble as well.

1. Iceberg’s argument: “Target price of 10 Singapore cents for Noble Group.”

Status: Partially validated

The share price is down by 77% since February 2015 from S$1.21 to 28 cents. The market cap plunged by $4.7b. We believe the real value of this company is much lower, if there is any value left. The share price will continue to sink.

Noble’s latest PR trick is to claim the drop is attributable to the general commodity rout. In reality, Noble massively underperformed other traders such as asset-light oil trader World Fuel Services (down by 29%), other traders like ADM (down 30%), Bunge (down 28%) and even Glencore that is both a trader and a very big miner (down 71%). The contrast between Noble’s bonds and competitors’ bonds is even more striking.

2. Iceberg’s argument: “Noble’s 13% stake in Yancoal is massively overvalued with a gap of around $600m between the carrying value as of Q3 2014 and the market value ($11m). This should be impaired.”

Status: Partially validated (impairment of $200m recognised by Noble)

Ten days after we published the report, Noble recognised an impairment of $200m. Remarkably, Noble is suing us for writing that what was worth $11m should not be valued 50 times this amount on the balance sheet. This is how Noble spends its shareholders cash these days.

The gap between the carrying value and the market value is still around $300m. The auditor EY obviously fails to apply any impairment test, engaging their responsibility.

3. Iceberg’s argument: “The ‘improvement’ of Noble Agri in 2014 is due to accounting presentation. Structural issues at Agri’s level are here to stay.”

Status: Fully validated

Once again, Agri recorded substantial losses in 2015. Noble wrote that Agri is responsible for the “vast majority of the $180m share of losses of JV and associates” in the first nine months.

4. Iceberg’s argument: “Selling the palm oil business will be very difficult for Noble.”

Status: Fully validated

The palm oil business has been “held for sale” on the balance sheet since September 2014. It is unclear whether it is part of the proposed Agri sale or still held for sale on Noble’s balance sheet.

5. Iceberg’s argument: “Noble Agri is overvalued on the balance sheet by at least $500m using a misleading accounting presentation.”

Status: Fully Validated

Noble has recognised that there is a gap of $546m between Agri’s carrying value and the transaction price, which will trigger a loss of $546m.

6. Iceberg’s argument: “We believe that at least $3.8b in fair values are overstated and should be impaired.” Note that this number was our assessment at that time but we believe it is now worse after net fair values increased to $4.5b.

Status: Not yet validated

The commodity contracts fair values are the heart of Noble’s financial manipulations. Although Noble has produced an impressive PR effort, they have not given any granular information on their mark-to-market. We are not aware of any bank that was given access to information on the largest mark-to-market.

Noble’s management cannot afford to show these contracts. They cannot sell them either because they are massively overvalued. Instead, Noble is selling their last tangible assets (e.g. Agri). This is exactly what happened with Enron before they collapsed. Noble’s banks will soon realise that what they are really financing is a pile of vastly overestimated contracts.

Noble tried (but failed) to silence critics by launching the PwC review. By Noble’s own admission (CFO and independent director), PwC did NOT review the valuation of the contracts. PwC only made sure that its client formally respects accounting rules. We already wrote in February last year that it was the case for the fair values, so PwC was paid to confirm what we had written. As we explained before, it is particularly easy to manipulate the calculation of a mark-to-market without formally breaking any accounting rule by exploiting multiple loopholes. For example, an important loophole that any commodity specialist is familiar with is the right for a trader to draw its own forward curve when there is no available forward curve. The PwC review was a badly executed PR trick and was immediately seen as such by the market.

We think the truth will soon be exposed. Too many problematic contracts have surfaced over the past months. For example the Financial Times investigated a suspicious petrochemical plant contract. Noble’s associate Cockatoo Coal is now in voluntary administration. Sundance Resources, an iron ore mining project, is in financial distress, etc. These contracts are a small fraction of a huge issue.

We believe that EY would face an extremely high reputational risk if they ignore long overdue impairments. There is simply too much attention around these fair values, too many stakeholders that want to have access to this information and will have access to this information ultimately. We expect massive losses for these fair values in 2016.

7. Iceberg’s argument: “We believe that Noble is engaged in heavy repos of its inventories to artificially lower its level of debt”

Status: Not yet validated

Noble claims they are engaged in inventory sales, not in repos, which means they have the option to repurchase inventories, and not the obligation to repurchase them. Mr. Alireza wrote “more often than not we exercise the option to take them back”. Michael Dee asked: “How many ‘inventory sales’ have you done in the past three years and how many times have you not repurchased then?” Noble has not answered.

We maintain our argument. It is well known that commodity banks do not want to find themselves with tonnes of inventories to liquidate. Liquidating commodities is a worst case scenario for them, not a normal way of doing business.

The legal action that Noble started against us will give us the opportunity to access Noble’s records and ask the banks precise questions. We will be able to establish whether Noble’s repurchases its inventories all the time, and whether the banks are involved in these sales only based on the understanding that Noble will repurchase inventories. In this case, the Court would have to decide whether there is a verbal de facto agreement, and this supplants the contractual agreement, and whether repos are disguised as inventory sales. The resulting crucial question will be whether Noble’s financial presentation is not only highly misleading (which we have already demonstrated) but also fraudulent, and whether these banks are knowing participants.

8. Iceberg’s argument: “The investment grade rating has always been an anomaly and this anomaly will be corrected”

Status: Fully validated

Both S&P and Moody’s have downgraded Noble to junk.

Conclusion

Most of our arguments are already facts. They are not “allegations” as we sometimes read. We have absolutely no doubt that the most important remaining argument (the commodity contract fair values) will soon be recognized as fact as well.