Noble Group’s life hangs in the balance. In a final attempt to preserve whatever value is left for creditors and shareholders it is seeking approval from a Bermuda court to restructure.
The commodities trader, under investigation by the Singapore authorities, warned that it would go into full liquidation if the restructuring fails. Even if the $3.5 billion restructuring proceeds, shareholders will suffer, market watchers say.
On December 12, the Singapore-listed firm said that the Securities Industry Council (SIC), a council under the Monetary Authority of Singapore (MAS) which administers takeovers and mergers, had granted another extension till December 31 for a whitewash waiver. This was initially due to expire on November 27 and was then extended to December 11.
This whitewash resolution waives the requirement for creditors to make a general offer for shares of New Noble, a wholly owned subsidiary of Noble that will take over the restructured business.
Under the restructuring plan, Noble will reduce its payable debt from $3.5 billion to $1.7 billion. The rest will be converted to equity. Creditors will own 70% of New Noble, with Noble’s original shareholders holding 20%, and management the remaining 10%. The restructuring also involves swapping $400 million of perpetual bonds for up to $25 million of new perpetual bonds.
“In the event that the company is unable to complete the restructuring, the company would be forced to enter into a full liquidation process. This will result in no recovery for shareholders and holders of the company’s perpetual capital securities, and also materially lesser recoveries for creditors,” Noble said on December 11.
Noble’s shareholders include a Chinese sovereign wealth fund. China Investment Corp (CIC), bought a 14.9% stake in September 2009 for $850 million. CIC's current 9.5% stake in Noble is worth only S$10.2 million ($7.4 million). Other creditors include Deutsche Bank and ING.
Noble’s letter to creditors on December 11 said: “The company intends to apply to the Bermudan court for a hearing on 14 December 2018 for the appointment of so-called 'light touch' provisional liquidators to implement the restructuring. The board considers this to be the only means to implement the restructuring.”
The company will be wound up if the Bermudan court rejects the application, a source close to the restructuring explained.
“It would appear this is a last desperate option,” a Singapore businessman said.
FAILED LISTING
On December 7, FinanceAsia reported that the Singapore authorities had blocked Noble’s attempt to transfer its Singapore listing to New Noble, seen as a vital element in preserving value for stakeholders. MAS, the Commercial Affairs Department of Singapore police and the Accounting and Corporate Regulatory Authority are currently investigating Noble for suspected misleading statements and possible accounting irregularities.
The blocking of New Noble’s listing makes it more difficult for shareholders to divest, the source close to the restructuring said. Small shareholders are particularly hard-hit since they no longer have a stock market to price New Noble and through which they can sell their shares. Larger shareholders, typically institutional investors, have the financial resources to hire a third party to value New Noble, to enable them to sell their shares over the counter, the source added.
Bigger shareholders will be unhappy too, Arnaud Vagner, a former Noble employee, said: “For these hedge funds, the goal is to find a buyer to get rid of their exposure. It's much more difficult when you trade over-the-counter only.”
Vagner is the founding director of whistleblower website Iceberg Research. Since Iceberg first published allegations of fraud against Noble in February 2015, the company’s market capitalization has tumbled nearly 99% from $6 billion to $78.3 million on December 12.
Shareholders and perpetual bondholders can recover their money if they sue management and the auditor, Vagner said. “They won't recover money if they believe or dream Noble will recover.”
In case the use of “light touch provisional liquidators” scares creditors into thinking that liquidation is inevitable, Noble’s letter to creditors clarified that their use “does not constitute the entry into a liquidation process”.
The Singapore businessman said: “What keeps people trying [restructuring] are the fees, self-serving interests and unrealistic hopes. No one wants to lose everything they invested. Unfortunately, sometimes it's better to let companies which are too damaged to get liquidated.”
This story has been corrected to show Arnaud Vagner said: “Shareholders and perpetual bondholders can recover their money if they sue management and the auditor."
