THE VIEW
The View
by

Noble running aground on rocks of Iceberg’s charges

PUBLISHED : Monday, 15 June, 2015, 9:58am
UPDATED : Monday, 15 June, 2015, 9:58am

Whenever in need of a handy anecdote about rich people, I like to tell the story of the time I was chiseled out of a few hundred bucks by a billionaire.

It’s a tongue-in-cheek story, though based on an actual event. I was hired to write a speech for a self-made mogul, then dumped with no kill-fee. Perhaps it was all the questions I was asking about his fairly secretive company, or the affront of suggesting he start off with a self-deprecating joke - or just a correct hunch that I’d probably be a lousy speechwriter.

Whatever the case, this billionaire was Richard Elman, the embattled founder of Hong Kong-based Noble Group, and it seems I am not the only person to have parted ways with him feeling a bit singed.

In a recent lawsuit, Noble says that a disgruntled ex-employee named Arnaud Vagner is behind Iceberg Research – the “whistleblower” firm which has issued a series of searing reports charging Asia’s largest commodities trading firm with fabricating its profits.

Legal threats have not stopped Iceberg Research from continuing to pursue, with apparent glee, its brutal campaign against Noble.

“The only hope for #Noble is to find a buyer who is willing to acquire a mountain of fabricated [mark-to-market valuations],” Iceberg tweeted just last week. “Miracles happen, but will not be easy.”

Iceberg liberally uses the E word – as in Enron – to describe Noble’s accounting practices. Among Iceberg’s charges: that by inappropriately classifying its minority stakes in coal and food firms, Nobel slithers out of recording the current market values of these deflated assets. This not only inflates book value, but distorts profits and also has cash implications.

Other critics have joined the scrum, the latest being an ex-Morgan Stanley banker named Michael Dee, who last week published an oddly emotional and jumbled letter in which he said there is “no question in my mind that Noble is able to answer the accusations made by Iceberg in a clear and comprehensive manner.”

Then why isn’t it? “The only plausible explanation,” wrote Dee, “is because Iceberg has been right all along and Noble’s management are merely trying to save themselves.”


It’s a strange approach to salvation. The Singapore-listed shares have lost roughly half their value since Iceberg’s first salvo was fired in mid-February, yet Noble still has not satisfactorily addressed the main claims. Instead Elman has asked shareholders for “patience” and “confidence.”

The stock is now at S$0.53, compared to S$1.21 in February. Iceberg’s price target is S$0.10

Noble has its defenders. A number of brokers have price targets that well exceed S$1, and banks are still providing financing. The firm also has its singularly impressive history on its side. It starts with Elman, a high school dropout who after a series of adventures started Noble Group in the 1980s in Hong Kong.

Rather than surrounding himself with the usual-suspect MBA types, he partnered with people like Harry Banga, an Indian merchant mariner who brought in knowledgeable and probably economical Indian ex-navy personnel to help grow the shipping and logistics businesses.

Noble’s strategic successes include cutting through the jungle-like red tape to make inroads in Brazil, and settling territorial disputes with Chinese state-owned competitors by bringing them on board as investors.

While there were always complaints about transparency, Noble evolved from a closely held small cap stock to one of the region's best-known firms, with broad institutional coverage and ownership.

Elman’s charisma – as reflected in his spirited and quirky chairman’s letters of yore – certainly helped win over investors. Chutzpah would be another way to describe his approach to investor relations – the chutzpah, for instance, to insist on accounting treatment that even Nobel’s auditors have red-flagged.

Iceberg’s reports are poetically convincing, but the story they tell was not hard to uncover. Most of it was there in the annual report the whole time, spelled out in the form of reservations noted by the auditor.

Now that the E-word has been broached, regulators are investigating, short-sellers are circling, and critics are calling for Elman to go. The risk is that this whole drama reverberates – that planned asset sales fall through, banks pull in funding, that trading partners get spooked.

The risk is that a once-dismissed employee wreaks a stunning and fatal revenge.