SINGAPORE (June 17): Commodity trader Noble Group Ltd. took on its critics today with an open letter defending its accounting methods and valuations of an Australian coal asset.

Noble has seen its shares drop more than 40% since an anonymous group that calls itself Iceberg Research published a report in February claiming Noble uses inventory repurchase agreements with banks to cut its debt levels at key financial reporting periods.

The company doesn’t have off-balance sheet repurchasing agreements, known as repos, but uses optional inventory sales “on a limited basis” which are not recognized as repos under accounting rules, Chief Executive Officer Yusuf Alireza said in the letter filed with the Singapore Stock Exchange.

The valuation of Noble’s stake in Yancoal Australia Ltd. is “consistent with practice in the mining industry and accounting policies,” the CEO said.

Noble last week started buying back its stock in the face of a tenfold jump in short interest in its equity.

The trader reported purchases on three consecutive days to total 63 million shares, or about 1% of the outstanding stock.

The shares declined by 0.7% to 71.5 cents at 9:52 a.m. local time. Goldman Sachs Group Inc. yesterday cut its rating on Noble to a Neutral from Buy.

Firing Back
Today’s Noble letter fired back at Iceberg, saying the group isn’t credible. It also said criticism from ex-Temasek Holdings Pte manager Michael Dee was based on “false” claims.

Dee this month said Noble founder Richard Elman should resign and wrote an open letter to the trading company’s staff urging them to question top management actions.

“Noble Group has responded to all questions raised, contrary to Mr Dee’s published statements,” Alireza said in the letter.

Dee disagreed in an e-mailed response this morning.

Noble, in repeating its confidence in the Yancoal numbers, has again declined to publish the valuation model it uses and that means it cannot be independently verified by the market, Dee said .

“You ask us to believe all your mark-to-market valuations yet you will not show us your work,” Dee said. “Release the full model, I dare you!”

Noble also said that the person behind Iceberg is a former credit analyst in its freight department who was ranked “as a bottom 10% performer” and was fired for disruptive behavior and a failure to improve.

Noble has previously identified the former employee as an Arnaud Vagner.

“Iceberg does not make personal attacks and does not answer personal attacks,” the group said in an e-mailed reply to questions this morning.

“We have a substantial and persistent impact because of the quality of our research.”

Iceberg said that the arguments Alireza presented “are not correct” and urged market regulators to investigate the company.

Iceberg has declined to identify who produces its research.

Using a repo the selling party can raise short-term cash while lightening balance sheet debt. The seller is obliged to buy back the original product at a set date in the future.