War of Words: Lessons From Noble Group’s Handling of Its Many Critics

Michael Dee, a former Morgan Stanley senior executive and Senior Managing Director, International, at Singapore’s sovereign-wealth fund Temasek Holdings, has issued a challenge to Yusuf Alireza, the CEO of besieged Singapore-listed commodities giant Noble Group.

CFOs can learn lessons from how the company is dealing with its critics because, like it or not, it is much easier these days for self-styled whistleblowers and governance champions to mount a podium and have their views taken seriously

“Mr. Alireza, if you are so confident of your Yancoal book value, release the full model, with all its assumptions, both before and after you recently wrote it down 40%,” Dee said last week. “You ask us to believe all your mark-to-market valuations, yet you will not show us your work. Release the full model, I dare you!” 

It’s the latest round in a seemingly never-ending controversy that has been hounding US$85-billion-in-revenues Noble since February this year. A former employee, Arnaud Vagner, published a report in the name of an unknown entity called Iceberg Research that questioned Noble’s accounting, which it compared to the dodgy numbers keeping that ultimately led to Enron’s spectacular collapse.

In April, short seller Muddy Waters waded in and charged that Noble’s debt is at unsustainable levels. Dee joined the fray in  May, penning an open letter in which he urged “straight answers to simple questions” on the valuation of Australia-listed coal firm Yancoal and whether transactions Noble accounts for as “inventory sales” are actually repurchase agreements (repos).

As it did with Iceberg and Muddy Waters, Noble responded to Dee’s assertions. On 17 June, Alireza (himself a former banker like Dee, having been employed by Goldman Sachs) issued an open letter. In it, he denied that Noble Group overvalued Yancoal and that the company has “off-balance sheet repos, as Mr. Dee has falsely claimed.”

He asserted that the group “has responded to all the questions raised . . . in a variety of forums, including directly to stakeholders such as banks and core shareholders, who have been satisfied with the answers.”

In other words, the stakeholders that matter, the banks and major shareholders, are satisfied, so people like Dee and Vagner, along with organizations like Muddy Waters, should accept that and just shut up. Alireza’s parting shot to Dee went thus: “I trust that you now understand our position and that you will not feel the need to voice any more inaccurate opinions through the media.”  

Power of the Internet

Fat chance. Regardless of what Noble says and how many times Alireza says it, new critics keep popping out of nowhere to hammer the company – and its stock price. From its historic high of S$2.47 a share in 2010, Noble now trades at just S$0.71 per share, a fall of 71%. The stock is down 43% since Iceberg issued the first of its three reports in February.

CFOs can learn valuable lessons from how the company is dealing with its critics. Noble’s dilemma highlights the need for companies to deal with the new environment ushered in by the Internet and social media. Like it or not, it is much easier these days for self-styled whistleblowers like Vagner and governance champions like Dee to mount a podium and have their views taken seriously.

Noble’s challenge is to rebut the claims of the critics in a credible way and thus reassure the markets, its stakeholders and its bankers. The lenders are a particularly important group to mollify because trading companies need cash at short notice to fund their activities.

In April, 15 banks had agreed to extend to Noble a US$2.5-billion revolving credit facility. But according to the Wall Street Journal, Australia & New Zealand Banking Group is now trying to sell part of its US$100-million exposure. “Other lenders have also been in the market seeking to reduce their portions,” the newspaper reports, citing “people familiar with the matter.” 

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