Noble's equity shareholders ask for more

A lawsuit and stock sales underline equity shareholders continuing dissatisfaction with Noble's proposed restructuring as the group defaults on its March 2018 bond issue.
When is just right?
When is just right?

Noble Group’s ability to keep its proposed $3.5 billion debt restructuring on track suffered a fresh blow on Tuesday after one of its largest equity shareholders filed a lawsuit with the Singapore High Court.

According to several media reports, Abu Dhabi-based Goldilocks Investment Company is seeking damages on behalf of equity shareholders and wants to claw-back $169 million in what it alleges were excessive payments to senior Noble executives between 2011 and 2017.

Its move underlines the wide gulf between Noble Group and some of its equity investors ahead of a crucial shareholders meeting scheduled for late April or early May when they will vote on the commodity trader’s restructuring plan. Without shareholder approval, the current plan cannot move ahead.

Noble undoubtedly hoped it had made a breakthrough last Wednesday when it announced that it had signed a binding Restructuring Support Agreement (RSA) with 46% of senior creditors.

This meant it still had a way to go to reach its target 75% of creditors by value. But it also showed Noble was now close to getting there given it said a further 15% of creditors were in broad agreement and a further 4% (Deutsche Bank and ING) were in the final stages of securing sign offs.

However, several of the group’s equity shareholders and perpetual bondholders remain implacably opposed despite being offered slightly improved terms under the new plan.

Perpetual bondholders, for example, have been offered new securities with a face value of $25 million instead of $15 million in cash under the last plan announced in January. Equity investors, meanwhile, will get a 15% stake in the new group up from 10% before.

Yet as one Hong Kong-based investor in Noble’s perpetual bonds told FinanceAsia on Tuesday, “The clock is ticking for Noble. We think the company should sweeten the restructuring proposal since equity investors have taken steps, which demonstrate their “no confidence” in the company.”

A couple of other bears have also joined Goldilocks and flagged “no confidence” by trimming their equity stakes to try and minimise future losses. But a lack of willing buyers means that even the smallest divestment has a big impact on Noble’s distressed share price.

As a result, stock sales by Orbis and Prudential group entities between March 14 and 19 have sent Noble’s share price into a renewed tailspin. It has fallen 47.1% over the past four trading days and 18.2% alone on Tuesday.

Singapore Stock exchange filings show that Prudential-owned subsidiaries including Eastspring sold 3.36 million shares on March 14, raising S$566,000 ($421,000). This reduced their combined stake from 10.1% to 9.9%.

Then on March 16 and 19, a group of Orbis group entities sold stock. One group comprising Orbis Allan Gray, plus Allan & Gill Gray Foundation and Orbis Holdings sold 27.43 million shares, raising S$3.49 million. This reduced their stake from 10.06% to 8%.

Simultaneously, Orbis Investment Management (Hong Kong) sold 11.5 million shares on the March 15 and 19 to raise S$1.447 million. This reduced its stake from 9% to 7.4%.

The sales are likely to have changed the rankings of Noble’s largest shareholders based on S&P Capital IQ’s latest data. This showed that founder, Richard Elman, still had the largest stake followed by Norges Bank Investment Management, Orbis Investment Management, Eastspring Investments (Singapore), China Investment Corp (CIC) and Goldilocks on 8.1%.

CIC, Orbis and Eastspring have all been long-term investors and therefore borne witness to a huge destruction in shareholder value since Noble’s share price hit a five-year high of S$11.07 in the middle of 2014. Since then, the stock has made a vertiginous plunge to close at just S$0.11 on Tuesday.

CIC sitting on $900 million plus paper loss

According to the same S&P data, China’s sovereign wealth fund has seen the value of its holdings plummet from S$1.275 billion ($967.73 million) at the end of June 2014 when it held a 93.055 million shareholding. On Tuesday, its holdings were worth just S$13.872 million ($10.53 million) based on a 126.1 million shareholding disclosed in Noble’s last annual report.

Yet as one proprietary trader told FinanceAsia, “Noble needs to avoid the restructuring talks collapsing due to pressure from its shareholders.”

The person also added, “If the deal fails to go through, then it will be creditors that will be taking the company to court to claim their losses.”

Noble itself has upped the ante by stating that if shareholders do not agree to the restructuring plan, it plans to implement an alternate one through the UK. Under UK law, this would effectively declare the company insolvent.

Specialists say it would potentially enable many of Noble counterparties to walk away from their long-term contracts and place equity investors at the very end of the repayment queue.

Traders are also watching to see how investors will now react after the group failed to repay a $379 million bond, which matured on Tuesday. In a filing, Noble said it had not repaid the bond because it wanted to preserve assets “for the benefit of all stakeholders during the implementation of the proposed restructuring".

But the move constitutes an “event of default” under the bond’s documentation and cross-default over other debt. Bond specialists point out that if these bondholders are not part of the group which has signed up to the RSA, they could take Noble to court for re-payment.

Noble’s other outstanding bonds, including its 2020 and 2022 notes, have remained fairly stable around the 50% mark.

Commenting on Noble’s RSA last week, Nomura credit analyst Annisa Lee wrote: “We see a high likelihood that the company will eventually obtain sufficient approval for the proposal, which may likely reduce bond price volatility.”

But she added that: “We acknowledge that approval of existing shareholders is still required and the timeline of the deal completion by mid June sounds aggressive.”

If the RSA goes ahead, Noble will also receive $600 million from a new three-year re-financing facility and $100 million in hedging facilities. This will be underwritten by an ad-hoc group of senior creditors led by Varde Partners, Och-Ziff Capital and Taconic Capital, plus Deutsche Bank and ING.


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