The opening of a formal investigation into Noble Group could provide ammunition for lawsuits against the Singapore-listed company and, possibly, also banks associated with the commodities trader.
It may even jeopardise Noble's protracted $3.5 billion debt-restructuring, think some observers.
On Wednesday, Noble announced that both it and its wholly-owned subsidiary Noble Resources International (NRI) had received letters from a trio of Singaporean watchdogs. The Monetary Authority of Singapore (MAS), Commercial Affairs Department (CAD) of the Singapore police, and the Accounting and Corporate Regulatory Authority (ACRA), Noble said, were demanding access to their books stretching back to 2012.
If Noble is found guilty of issuing misleading financial statements, bondholders and creditors possibly have grounds to sue the company, one senior Singapore lawyer told FinanceAsia on condition of anonymity.
A Hong Kong regulatory consultant contacted by FinanceAsia also, off the record, did not rule out the possibility that banks who arranged bond issues for Noble might yet be sued by investors.
But she added that if these banks can show they conducted adequate due diligence and had no inkling of misleading financial statements, they will likely escape liability.
“The creditors, I am sure, will consider their position seriously and seek legal advice," said David Gerald, the founding president of the Securities Investors Association (Singapore), a local shareholder advocacy, said. "Nevertheless, it would be wise for them to wait for the investigations to complete.”
Noble, once Asia’s largest commodities trader, has shrunk to a shadow of its former self. Its annualised revenue from continuing business operations in the first half this year was $5 billion, a steep drop from the $67 billion recorded in 2015.
Noble has said it will continue to try to implement its restructuring within schedule while cooperating with the investigation. However, the investigation could yet complicate things at the last minute, Nirgunan Tiruchelvam, head of consumer-sector equity research at investment bank Exotix Capital, said.
“It can possibly delay it because it seems to be a serious issue,” he said.
Gerald said he did not believe the authorities would derail Noble’s restructuring but would still "deal with the relevant people and the organisation appropriately if they are found to have committed any breaches.”
Other experts criticised the continuity in senior personnel at the company, despite founder Richard Elman's earlier pledge to junk plans to stay on as an executive director.
“The concern is that in the restructuring agreement they entrenched some existing management," Mak Yuen Teen, associate professor of the National University of Singapore Business School, said. "I did not like that at all and some existing management may be investigated. Hopefully, action and any monetary penalties will be imposed on the directors and management and not on the company.”
A lawsuit is already in the works from Iceberg Research, a whistleblower website set up by Arnaud Vagner, who was fired from Noble. On August 14, Iceberg said it had spoken to law firms that were ready to represent shareholders and bondholders against Noble. Some Noble securities holders already want to participate in this legal action, said Iceberg, which is encouraging other investors to join in.
Since Iceberg first published allegations of fraud against Noble in February 2015, the company’s market value has collapsed by more than 99% from $6 billion. In April, US short-seller Muddy Waters also published allegations that Noble had issued misleading financial reports.
Noble has denied all these allegations.
Noble shareholders in August approved a plan to swap $3.5 billion of debt into equity to create a new company, New Noble, under the control of its creditors. Shares in this company are scheduled to start trading on the final Tuesday of this month.
Noble may have cleared most of the hurdles to proceed with restructuring, “but it will be a massive challenge for it to survive and prosper again, given the amount of debt, the many vested interests in New Noble, and the business that is left,” Mak said.
He added that in his opinion Noble’s corporate governance had not improved. “In fact, at the start of the restructuring, I said that its corporate governance had actually become worse. There is now a plan to improve the board for New Noble but it has come rather too late,” Mak said.
Standard & Poor’s in January lowered its rating for Noble from CCC- to CC, dubbing the restructuring first announced earlier that month “a distressed exchange” because the noteholders will receive materially less than the par value. It further lowered the rating to D or default on March 20 after Noble missed principal and coupon payments due that day.
This story has been updated to correct the spelling of Richard Elman's name