Chan Kit Whye on 3rd Iceberg report on NOBLE GROUP

Prior to his retirement, Chan Kit Whye (left) worked more than 30 years as Regional Finance Director, Financial Controller and Manager in a multinational specialty chemical business. He has played an active role in CPA (Australia) Singapore Branch, taking up positions in its Continuing Professional Development and Social Committees.

Kit Whye is a Fellow of CPA Australia, CA of Institute of Singapore Chartered Accountants and CA of the Malaysian Institute of Accountants. He holds a BBus(Transport) Degree from RMIT, MAcc Degree from Charles Sturt University and MBA from Durham Business School.

The key to the report lies in the $3.8 billion "estimate fabricated net fair values". Iceberg must provide a convincing explanation as to how the $3.8 billion fair value adjustment was fabricated.

Certainly fair value is subjective based on independent professional judgment, and in particular, agricultural commodities. If this is the true fact, then we must also look at other similar listed companies where positive fair value adjustments impact earnings per share, equity and net asset value.

I am referring to companies like Wilmar, Olam, Golden Agri, etc.

I do not accept that corporate guarantee must be incorporated as a balance sheet liability, but rather it should be disclosed as a note to the accounts as a contingent liability, unless the payment or the call is probable.

The auditors, EY, should have conducted a test to confirm that such corporate guarantee is only a contingent liability.

The 10 cts SGD target price of Noble is absurd, but its last financial EPS is 2 cent USD, which give it a PE of more than 30 times.

Not considering its reported NAV per share of $1 a share, if we scale down its PE to 15x, then the share should be priced at about 40 cents SGD.

Noble's latest balance sheet show that it has about US$4 billion debt with about $3 billion of net working capital (excluding current debt maturities), which means the company is short of $1 billion in the event of liquidation.

There could be many things hidden in associates which need not be revealed under current accounting standards.

Nevertheless, corporate governance issue will now have to take a center stage and SGX must bring in a new regulatory framework to address directors' independence, directors term of office, etc.

We shall see how market is going to react on Monday, and at the same time, how Noble's executive board is going to argue and defend its current position versus Iceberg concerns.