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The BIG reckoning

Jeffrey Tan
Jeffrey Tan • 20 min read
The BIG reckoning
CAD, MAS and ACRA have finally launched an investigation into the supply chain manager, three years after Iceberg Research accused it of overvaluing its assets and undervaluing its liabilities. Why are the authorities acting now? What does it mean for the
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CAD, MAS and ACRA have finally launched an investigation into the supply chain manager, three years after Iceberg Research accused it of overvaluing its assets and undervaluing its liabilities. Why are the authorities acting now? What does it mean for the company’s controversial restructuring plan?

By Jeffrey Tan

SINGAPORE (Nov 26): Noble Group was an admired commodities trader with a market value of more than $5 billion when a little-known outfit Iceberg Research accused it of accounting deception in early 2015. Today, the company has a market value of just $107.5 million, and it is on the brink of a restructuring that will see its creditors owning most of the firm. It has also divested some of its key assets to settle its debts. And, through it all, Noble’s board of directors and management have consistently denied any wrongdoing.

Now, the company faces a big reckoning. On Nov 20, the Commercial Affairs Department (CAD) of the Singapore Police Force, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) announced that they were jointly investigating Noble. The three agencies are looking into whether the company had made “false” and “misleading” statements, and breached disclosure requirements under the Securities and Futures Act (SFA).

See also: Noble case underscores need for regulatory reform, new growth strategy for local market

The investigation will also look into a potential non-compliance with accounting standards under Section 201 of the Companies Act by Noble’s wholly-owned subsidiary Noble Resources International. In particular, ACRA has notified NRI’s board of directors that it has discovered “suspected breaches” of the Companies Act. ACRA has required the directors to furnish further information as part of the ongoing investigation. This follows an “extensive review” of the financial statements of NRI for the financial years ended Dec 31, 2012 to Dec 31, 2016.

Meanwhile, CAD and MAS have directed Noble and NRI to produce documents relating to the preparation of Noble’s financial statements. This comes after a “thorough review” of other relevant information, including information referred to the authorities by the Singapore Exchange Regulation Co (SGX RegCo) and other third parties.

Noble says its independent non-executive director David Yeow has received letters dated Nov 20, 2018 from CAD and MAS instructing the company to furnish the relevant financial documents. Noble adds that NRI has received a letter from ACRA, requesting to provide information relating to the preparation of NRI’s financial statements. In a Nov 21 filing with the Singapore Exchange, Noble says: “The company and NRI intend to cooperate fully with the authorities in their investigation. In particular, NRI intends to provide its views to ACRA on ACRA’s assessments set out in its letter.”

Arnaud Vagner, the man behind Iceberg Research, issued a caustic response to the joint move by CAD, MAS and ACRA. “After three years of hesitation, Singapore’s regulators are rushing to the crime scene,” Iceberg Research tweeted the same day the joint investigation was announced. The Twitter posting comes attached with a gif depicting an overweight basset hound running in slow motion.

Michael Dee, once CEO of Morgan Stanley’s business in Southeast Asia and a former senior managing director at Temasek Holdings, who had raised the same concerns as Iceberg, reacted somewhat more positively, though. “It may be too late for those small investors who lost all their savings and the institutions who lost billions. However, it is never too late for justice to be served and this is a very welcome development,” he says. “It is satisfying that after three years of only two of us yelling fire from the rooftop that the fire department has finally shown up.”

Many local observers agreed that the authorities moved too slowly. “The latest joint investigation would likely seem to be a case of too little too late, particularly to many who had borne the brunt of the Noble saga. [It comes] three years after the Iceberg report and, more importantly, after billions of dollars have been wiped of its market value,” El’fred Boo, associate professor of accounting at Nanyang Technology University (NTU), tells The Edge Singapore via email.

Terry Tan, managing director of management consulting and advisory firm Hopeshine Capital, expressed a similar view. “The joint investigation comes a bit too late, as Noble has already started its restructuring process to form a new company. Noble had obtained the required approvals for its restructuring and payment to creditors and completing its controversial debt-for-equity swap,” he says via email.

Some market watchers say the authorities probably moved as fast they could, given the circumstances. “Noble, in its heyday, was a large group with complex businesses spanning the globe,” says Stefanie Yuen Thio, joint managing partner at TSMP Law Corp. “With a complex group, there could be a lot of transactions to look into and it is not unreasonable for this to take a longer time. The authorities from the various regulatory agencies have been working closely together throughout the process and, with the high stakes involved, I’m sure they have worked expeditiously.”

This is a view echoed by Themin Suwardy, dean of postgraduate professional programmes and associate professor of accounting (practice) at Singapore Management University. “One could very well argue that a more proactive regulatory stance and actions could have uncovered such new evidence much earlier. But, to be fair, we must remember that it is always possible that new evidence may turn up years after initial reporting of problems at Noble,” he says. “We should trust that the authorities will carefully investigate if there has been any wrongdoing in relation to the false/misleading statements and breaches of the [SFA].”

How it all began

The way the authorities tell it, they had been watching Noble pretty much when Iceberg Research began publishing negative reports on the company. “The authorities have been working together since 2015 to carefully review the allegations raised by various parties against Noble, and following up on information and leads provided,” say CAD, MAS and ACRA, in a reply to queries from The Edge Singapore.

“Notwithstanding the clean audit opinion issued by Noble‘s statutory auditors for financial years ended Dec 31, 2014, 2015 and 2016, the authorities continued to gather and review information to establish a basis to probe deeper into the case. This included information relating to the substantial write-downs that were announced by Noble in late 2017 and early 2018. The review of this and other information provided the basis for authorities to commence overt investigations into potential breaches of our law,” they add, in a statement.

Iceberg began publishing a series of hard-hitting reports in early 2015, alleging that Noble was the next Enron. In two reports, Iceberg alleged that the company used accounting loopholes, or aggressive accounting, in every component of its financials, including its income statement, balance sheet and cash flows. Iceberg also alleged that Noble routinely exploited the accounting treatment of its associates to avoid large impairments and to fabricate profits. It also criticised Noble’s accounting methods, saying the supply chain manager had inflated the value of its assets and used creatively structured inventory to bolster its operating cash flow. In addition, Iceberg criticised the company for not writing down its investment in Yancoal Australia.

Yusuf Alireza, who was the then CEO of Noble, said the claims were completely false. He brushed aside the allegations, saying: “Iceberg is just a disgruntled junior employee-turned-anonymous blogger.” Without naming him, Noble had described Vagner as a former credit analyst in its chartering department who was fired for “disruptive behaviour”. Noble says the employee had earlier left his former employer, a bank, under almost identical circumstances.

Yet, much of what Iceberg said about Noble turned out to be true. The company faced a liquidity crunch and was unable to meet its debt obligations. This had led credit rating agencies, such as Standard & Poor’s, Moody’s and Fitch Ratings, to repeatedly downgrade their respective ratings for the company. In early 2016, the company reported its first annual loss in two decades of US$1.7 billion, versus earnings of US$132 million the year before. Noble was also dropped as a constituent of the Straits Times Index.

The company’s dire situation began to force it to sell some of its businesses to raise funds. Notably, it sold its US energy business for US$1.1 billion in 2016. The following year, Noble agreed to sell most of its global oil liquids business to Vitol Group and completed the sale for about US$1.42 billion ($1.95 billion) in early 2018.

Changes of key personnel at Noble were also made. Alireza stepped down as CEO in May 2016. Subsequently, Noble’s founder and chairman Richard Elman resigned as chairman in June 2016. Paul Brough, a restructuring veteran, was appointed as Noble’s new chairman in 2017. He had been independent non-executive director of the company since 2015.

As chairman, Brough announced that he would conduct a “strategic review of the business” and “explore strategic alternatives” for Noble. The result of this was a restructuring plan announced on Jan 29 this year. This plan allows an “ad hoc group” of senior creditors that holds US$3.4 billion ($4.5 billion) of its debt obligations to swap their debt for a combination of new debt instruments and equity in a restructured company. The arrangement will substantially dilute existing shareholders. In addition, Noble intends to offer up to US$15 million in aggregate to those who hold its US$400 million in perpetuals.

Broadly, the restructuring involves the creation of “New Noble”, which will be 70%-owned by Noble’s creditors, 20% by existing shareholders and 10% by Noble’s management. The new company will acquire certain assets from Noble and take over its listing on the SGX. On Aug 27, shareholders overwhelmingly approved the restructuring plan, which was sanctioned by the English and Bermuda courts on Nov 15.

Trading in Noble shares has been suspended since Nov 16. The share transfer books and register of members of the company was closed on Nov 21 — until Nov 27. This is to determine the entitlements of the shareholders in respect of shares in “New Noble”, which is the new entity that will own the company. Shares in the New Noble are expected to open for trading on Nov 27.

Restructuring in limbo

The big question now is: Will the restructuring process proceed as planned? Or, has the joint investigation thrown a spanner in the works?

Noble says in a Nov 21 statement: “The company remains of the view that its proposed restructuring is in the best interest of all of the company’s stakeholders, including its creditors and shareholders. It will continue to work towards implementing its proposed restructuring within the previously disclosed timelines.”

In response to queries by The Edge Singa­pore, SGX RegCo says it will be reviewing whether the joint investigation will have an impact on the pro forma financial statements disclosed in the circular related to the restructuring process. “Trading can start only after restructuring has been completed, and this is in turn dependent on our review. SGX RegCo has been engaging the relevant regulatory agencies on this matter and will continue to do so,” says a spokesperson. “As investigations are ongoing, we are unable to comment further.”

Some observers say the joint investigation will have no negative impact on the restructuring plan. This is because Noble has already obtained shareholder approval, says Tan of Hopeshine Capital. “The joint investigation will be performed on the old company and will have little impact on the current restructuring. Therefore, it is more like a new beginning for Noble,” he explains.

TSMP Law’s Yuen Thio concurs, noting that the restructuring process was also sanctioned by the relevant courts. “If any stakeholder feels he has been prejudiced by any misstatement, then he would probably have to go to court to get an injunction on the restructuring proceeding. The question is whether that stakeholder would have sufficient information to back up the application and whether stopping the restructuring would be for anyone’s benefit. Bear in mind that minority shareholders do not currently have a ready market for their shares. Any injunction might leave them in trading limbo, to their detriment,” she says.

SMU’s Suwardy reckons the joint investigation puts a “big question mark” on Noble’s restructuring process. “This latest investigation is by far the most serious, at a time when Noble has used every single lifeline it can find to remain afloat. Are there any lifelines left? Will the investigation result in specific charges? This is what we are all guessing,” he says.

Boo of NTU’s Nanyang Business School is of a similar view. “Parties involved in the restructuring process, particularly the buyers, are likely to cry foul if the joint investigation uncovers more skeletons in the closet. It is likely, in the most benign scenario, to delay the restructuring process. In the worst-case scenario, it could unravel the whole restructuring process if it turns out that the sellers have little left of value to sell.”

Mak Yuen Teen, associate professor of accounting at NUS Business School, says even if the restructuring goes ahead without a hitch, he is not confident about the prospects for New Noble. “I did not think there is much of a future for the New Noble to start with, given the amount of debt and the deals that have been struck to keep everyone happy, even if they pull off the restructuring — I think it is just keeping it on life support,” he says.

Dee also does not see much of a future for the restructured company. “This company is worthless and has been for a long time. Perhaps back in 2013 when Iceberg and I started, it could have been saved, but not now. The company should be shut down and liquidated while the management, founder, board of director [and] auditor should all get their due punishment following a comprehensive criminal review,” he says.

Did regulators fail?

Before CAD, MAS and ACRA appeared on the scene, the main regulatory agency dealing with Noble was SGX RegCo. In the wake of the accusations by Iceberg, it required Noble to appoint an external auditor to conduct a special audit of its accounting methods. PwC was duly tasked with the special audit, and it found that Noble’s accounting practices complied with the relevant standards. SGX RegCo did not directly answer queries from The Edge Singapore on whether it was still standing by the report by PwC.

Some of Noble’s critics have discredited the special audit by PwC. Mak of NUS Business School says PwC was “very much controlled” by Noble itself. “It was more of a desktop review than a forensic investigation,” he says. Meanwhile, Dee notes that the lead independent director who commissioned the report has been a PwC senior adviser for nine years. “The PwC report in no way vindicated Noble’s accounting, which is clear from their report. Noble lied in saying it cleared Noble’s accounting, when it did no such thing. It was a total sham and meaningless,” Dee says.

Dee adds that SGX RegCo has failed in its duty to protect the interests of minority shareholders and other stakeholders, even though he personally brought the situation to its attention. “SGX needs a comprehensive house cleaning in the regulatory leadership and the board to make crystal clear that their first priority is investor protection.”

According to Mak, other locally listed companies are developing the same problems as Noble. In particular, he notes that the review for Datapulse Technology was also controlled by certain vested parties. “I see many mini Nobles in the market, where there are questionable transactions, massive dilution and continual decline in shareholder value. But SGX still tends to rely on the directors and auditors to ensure things are done right,” he says. “SGX needs to take greater ownership and oversee such reviews if they are going to be meaningful. The party engaged should report directly to SGX, not to the company itself.”

TSMP Law’s Yuen Thio points out that SGX RegCo lacks wide-ranging powers of investigation and the ability to impose hefty penalties, unlike the US Securities and Exchange Commission. She notes that SGX RegCo’s role is to be a “guardian of the gate, not executioner” and to be diligent in its duties, “which it has been”. She adds that the regulator has also been proactive in asking probing questions to protect minority shareholders. “The fact that MAS and ACRA are still investigating this is due, in part, to the collaborative efforts of all the regulators to delve into the affairs of the troubled group,” she says.

What’s next?

Iceberg’s Vagner is not confident that much will come of the investigation by CAD, MAS and ACRA. “I am very cautious. It may be a public relations exercise. Some similar investigations have been buried in Singapore,” he tells The Edge Singapore via email.

Dee is hopeful, however, that individual investors who have lost their life savings would be able to find some redress. On the other hand, he cares little for those who did nothing to rectify the situation at Noble. “I believe everyone who has touched this company are complicit and should be held accountable, including auditors, bankers, PR firms and lawyers,” Dee says. Ultimately, he hopes Elman, whom he believes is the mastermind, will be held responsible.

CAD, MAS and ACRA have not announced a timeline for the conclusion of their joint investigation. And, criminal actions are tough to prove, says Mak. Pursuing a civil case with penalties might be easier, as the burden of proof is lower, he says. This refers to the potential breaches of the SFA. That aside, ACRA cannot pursue Noble under the Companies Act, as the company is incorporated in Bermuda. It can, however, go after NRI.

Perhaps the greatest thing at stake is Singapore’s reputation as a trustworthy and reliable financial centre. “It’s important that Singapore shows that we are dogged in getting to the bottom of issues and that the regulators will investigate with rigour and diligence. It burnishes our reputation for transparency and good governance,” says Yuen Thio.

How Noble disintegrated


February: Iceberg Research releases two reports, alleging Noble that overvalued its assets and that a part of its profits came from non-cash gains. Shares in Noble plunge nearly 15%. The company alleges that a former employee is behind Iceberg’s reports. Noble’s full-year earnings fall 46% on impairments.

March: Third report by Iceberg says Noble understates its debt. Noble sues a former credit analyst for conspiring to spread misleading information.

April: Founder and chairman Richard Elman sidesteps questions at annual general meeting on how Noble values its stake in Australian associate Yancoal; dodges accounting queries; elicits criticism from Michael Dee, previously a senior managing director at Temasek Holdings and Southeast Asia CEO at Morgan Stanley.

August: PwC reviews Noble’s valuation process, says it is in line with industry practices

December: Noble sells 49% stake in farm business to China’s Cofco for US$750 million


January: Standard & Poor’s cuts Noble’s credit rating, citing volatile earnings. Elman buys 10 million shares for $3 million. Noble raises US$200 million through sale of receivables.

February: Noble reports first annual loss in two decades, of US$1.7 billion, compared with net profit of US$132 million the year before. Iceberg issues fourth report, recapping previous allegations.

March: Noble removed as component share in the Straits Times Index

April: Noble launches credit facility with interest margin of 225 basis points over the London Interbank Offered Rate, compared with 85 basis points for its previous US$1.1 billion loan

May: Noble arranges credit lines worth US$3 billion. CEO Yusuf Alireza resigns.

June: S&P cuts Noble’s rating, citing poor liquidity. Noble says it is raising US$500 million in a rights issue; Elman to step down.

August: Moody’s cuts rating on Noble, expects liquidity to come under pressure over the next year. Fitch says Noble’s liquidity may improve as it gets US$500 million from rights issue.

October: Noble sells US energy business for US$1.1 billion


February: Noble reports full-year earnings of US$8.7 million, turning around from a net loss of US$1.7 billion the year before. Iceberg reiterates allegations of fraudulent accounting at Noble. China’s state-owned Sinochem International Corp reportedly in talks to buy a stake in Noble.

March: Noble proposes share consolidation of 10 shares into one

May: Noble reports US$130 million net loss for first quarter, appoints Paul Brough as chairman. Brough to lead review of strategic alternatives. Credit rating agencies downgrade their respective ratings for the company. Sinochem reported to have lost interest in buying a stake in Noble. Noble’s 2020 bonds plunge to historic low.

July: Noble proposes to sell global oil liquids, gas and power businesses

August: Noble reports a wider loss of US$1.75 billion for second quarter, owing to one-off charges. S&P and Moody’s downgrade the company’s rating.

October: Noble agrees to sell US oil liquids unit to Vitol Group

November: Noble is queried by the Singapore Exchange on US$428 million loss from exceptional items in third-quarter results

December: Noble begins talks on debt-for-equity swap with investors


Jan 28: Iceberg advises creditors to reject debt-restructuring deal

Jan 29: Noble secures preliminary US$3.4 billion debt-restructuring deal with creditors

Feb 27: Goldilocks Investment criticises restructuring plan and Noble’s accounting

Feb 28: Noble reports annual loss of US$4.9 billion. Its ability to continue as a going concern was raised by auditor.

March 8: Noble appoints Provenance Capital as independent financial adviser to provide opinion on the proposed restructuring

March 13: Noble fails to make coupon payment for bonds due in 2022

March 16: Noble says it will not make coupon payments for bonds due in 2018 and 2022

March 20: Goldilocks Investment initiates lawsuit against Noble, accuses the company of inflating earnings to raise funds

March 30: Goldilocks Investment accuses Noble of threatening and oppressing shareholders to push through the restructuring deal

April 13: More than 75% of Noble’s senior creditors support the restructuring deal

April 27: The Singapore High Court allows a legal challenge by Goldilocks Investment to stop Noble AGM from proceeding

May 1: Iceberg and Goldilocks Investment criticise Noble’s aggressive accounting practices

June 20: Goldilocks Investment reverses adversarial stance to support restructuring deal

Aug 16: Arnaud Vagner announces via media interviews that he is the person behind Iceberg

Aug 27: Noble shareholders overwhelmingly approve US$3.4 billion ($4.7 billion) restructuring deal

Nov 15: The English and Bermuda courts sanction Noble’s restructuring plan

Nov 19: Trading in Noble shares is suspended as part of the restructuring plan to list New Noble on Nov 27

Nov 20: Singapore regulators announce a joint investigation into Noble’s wholly-owned subsidiary

Nov 21: Noble announces that its independent non-executive director David Yeow has received a letter from the Commercial Affairs Department of the Singapore Police Force and the Monetary Authority of Singapore, requiring the company to provide certain financial documents. It also announces that its wholly-owned subsidiary Noble Resources International has received a letter from the Accounting and Corporate Regulatory Authority, requesting information relating to the preparation of NRI’s financial statements.

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