January 30, 2018 / 6:36 AM / 25 days ago

Noble's creditors in driver's seat as group seeks to slash debt

SINGAPORE (Reuters) - Noble Group’s shares slumped 12 percent on Tuesday after the crisis-wracked commodity trader proposed a deal under which existing shareholders’ equity would be nearly wiped out, while the restructured company would have much lower debt.

“I don’t see any other option for bondholders as Noble could easily just file and put in place a billion dollar debtor-in-possession ... that trumps all the debt,” said Andrew DeVries, an analyst at research firm CreditSights.

Singapore-listed Noble, which had ambitions to rival the likes of global commodity traders such as Glencore and Vitol, has shrunk to its Asian roots, dealing in commodities such as coal and owning freight and liquefied natural gas (LNG) businesses.

This follows three tumultuous years in which the Hong Kong-headquartered company cut jobs and sold assets, some at losses, taking massive writedowns and raising funds.

“This debt for equity swap was something that ought to have been done a long time ago,” said Justin Tang, head of Asian research at United First Partners, a special situations investment and advisory group.

Noble said it had agreed a restructuring deal with an “ad hoc group” holding about 30 percent of senior bonds and loans, and would halve its senior debt to $1.7 billion. Perpetual bondholders would be offered $15 million, or less than 4 percent of face value.

Creditors would end up owning 70 percent of the restructured company, management would get up to 20 percent, and existing shareholders would own just 10 percent.

Key for Noble will be managing its debt payments in a fashion that allows them to trade profitably again.

Last year, interest payments and the merchant’s risk of failure were seen as so high that counterparties and banks demanded steep premiums that led to steep losses for the company despite an improving commodity market environment.

On the back of the proposed restructuring, S&P cut Noble’s long-term corporate credit rating to CC from CCC- and gave it a negative outlook, while Moody’s cut the rating to Ca from Caa3.

“If successful, the transaction will constitute a distressed debt exchange, which is a default event under Moody’s definition,” said Gloria Tsuen, a senior analyst at Moody‘s.

Moody’s said a high level of uncertainty surrounds Noble’s ability to turn around its operations and return to profitability, given the challenging operating environment and the company’s weakened business profile.

INVESTMENT FUNDS

Noble did not name the creditors with whom it made the deal. A source said these included investment funds such as Och-Ziff Capital Management, Taconic Capital Advisors and Varde Partners.

Taconic and Varde declined comment. There was no reply from Och-Ziff Capital.

“The creditors are all savvy operators who will now be in the driver’s seat, which will raise the prospect of a turnaround,” said Tang from United First Partners.

“Everyone involved has lost - (although) the distressed investors are best positioned when Noble turns around,” he said.

Noble shares fell as much as 23 percent on Tuesday before ending 12 percent lower at 0.23 Singapore dollars, giving it a market value of just $263 million. That is in sharp contrast to a valuation of $6 billion that it commanded in February 2015.

Noble was founded in 1986 by Richard Elman, who rode a commodities bull run to build the company into one of the world’s biggest traders, but it plunged into crisis in February 2015 when Iceberg Research started questioning its books. Noble has stood by its accounting.

Elman is Noble’s biggest shareholder with a stake of just over 18 percent. Other large investors include sovereign wealth fund China Investment Corp and Orbis Investment Management. Noble has been hemmed in by financing constraints - a major issue for trading houses - and it has lost many traders and analysts in recent years.

The proposed debt-for-equity deal has to be approved by regulators and Noble’s shareholders.

Reporting by Anshuman Daga; Additional reporting by Gloystein Henning; Editing by Tom Hogue and David Evans

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