Iceberg’s comments on the SGX Announcement made by Noble Group on 17 February 2015

In our report, we wrote that the $603m valuation gap for Yancoal is an accounting loophole. It may be formally acceptable from an auditors point of view but it is unreasonable from an investors point of view. We think Yancoal is a straightforward issue. Noble should recognise the $603m impairment (in particular on the $100m paper profit booked in 2012), record the loss, and move on. If Noble thinks that the share price of Yancoal is massively undervalued, the group should increase its ownership percentage.

We maintain that Noble misled the market about the performance of Agri. For example, Noble has not explained why depreciation fell and why Agri’s interest expenses were subsidised by the rest of the group. The really important question is: will Noble disclose the final price paid by COFCO, AND any remaining financial commitment related to this transaction? We have not been able to consult the Agri share sale agreement that was made available to the public in the Bermuda office.

PT Pusaka Agro Lestari’s plantation business licence and a right of cultivation are in order. Our point is that the local government seems to think otherwise. Indonesia has a rather unpredictable legal environment. The political tensions associated to PT PAL will complicate the sale process. However, according to Noble, PT PAL represents only 20-25% of the palm activity, and any future profits or losses incurred upon the sale of the palm assets will be shared equally between Noble and the COFCO led consortium. We will adjust impairments and valuation accordingly.

We did not approach the group to address our concerns because we did not want to alert insiders. We also note that Noble has not answered seven of the eight questions asked at the end of our first report.

Iceberg does not hold any position, long or short, whether directly or indirectly, in Noble’s securities.

Noble Group: a Repeat of Enron

Iceberg Research initiates coverage on Noble Group, a large commodity trader listed in Singapore, ranked number 76 in the 2014 Fortune Global 500 with revenue of $98b, market cap of $6b, and rated investment grade (BBB-/Baa3).

We show how Noble uses accounting loopholes, or aggressive accounting, in every component of its financials (income statement, balance sheet, cash flows). Noble intentionally misleads credit agencies and investors. The auditor, Ernst and Young, is well aware of the situation. The financial similarities between Noble and the defunct commodity trader Enron are striking (e.g. overvalued assets, contracts fair values, working capital management, debt presentation). The investment grade rating is definitely not justified. We estimate Noble’s equity is less than $360m (from a reported $5.6b) after the various impairments we list in this series of reports. On a price-to-book basis, the value of Noble’s shares is conservatively valued at a mere ten Singapore cents (a 92% fall from the current share price).

The three parts of our research are:

  1. Associates and Noble Agri
  2. Fair values (Continuing operations) and operating cash flows
  3. Real level of debt (gross and net), so-called “liquidity headroom”, auditor and governance

At this date, Iceberg Research does not have any long/short position in Noble’s securities (neither directly nor indirectly) and does not work in tandem with funds.

First Report: Associates and Noble Agri

Summary of findings:

  • Noble exploits the accounting treatment of its associates to avoid large impairments and fabricate profit.
  • Yancoal is the most representative example, with a gap of $600m between the carrying and market values. However, the accounting technique has been used for other companies.
  • Contrary to what Noble’s management claims, the misfortunes of these associates have a substantial cash impact on Noble.
  • The proclaimed recovery of the Agri business in 2014 was manufactured through the use of questionable methods such as subsidies from the group or depreciation cuts.
  • We believe the final price for the new associate Agri will be much lower than the provisional $1.5b payment; and/or that Noble will have substantial remaining financial commitments to its new associate. Noble may once again use the accounting for associates to hide the impairment.
  • Selling the palm oil business will be very difficult for Noble since the licence of one of its subsidiaries has been revoked by the local government.

Click here to download and print the first report: Report 1 Associates and Agri-15022015


  1. Noble’s relationship with Yancoal includes an associated marketing agreement that generates further earnings for Noble. Please be careful when equating a stock price with the full value of an investment.


    1. The marketing agreement you mention will certainly be under fair value gains on the balance sheet. Even if it were under the carrying value of Yancoal, the numbers given by Yancoal (on the other side of the trade) in its annual report are meaningless and cannot explain the gap.


  2. great research. would have appreciated a more objective tone though. I think the comparison with enron is not terribly accurate. I think a fairer comparison might be allied capital. still, good work


    1. The second report will really compare Noble and Enron.


      1. forget about the comparison. its just style anyway. why not show you arrived at your price target? that might be interesting


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