Noble survives but will it be able to thrive again?

RETIRED secretary Ms Caroline had deliberately shunned the past few shareholders' meetings of Noble Group - a company she has stayed invested in for 10 years. But on Monday, she dutifully turned up at Noble's pivotal special general meeting (SGM) for shareholders to vote on its US$3.5 billion debt rescue plan.

"I'm fed up. All I have are losses," she declared to this reporter. She then leaned closer to whisper, almost in a hiss: "I knew something was wrong since the rights issue."

She was referring to the troubled commodity trader's US$500 million cash call two years ago that was priced at a huge discount, earning investors' ire and hammering the stock.

Still, left with no choice and like most of the shareholders present, she voted in favour of the rescue plan as it represents the only hope for Noble to survive - a debt-for-equity swop that will leave equity investors with 20 per cent of a new, revamped company with the majority owned by senior creditors.

Unshackled from its debts, the new Noble will become an asset-light and Asian-centric business that will give it a new lease of life. That's the narrative the Noble board and management board is pitching. But whether the new Noble can generate enough cash, given the potent combination of thin margins and high finance cost is debatable.

There were plenty of long-suffering shareholders who turned up at the SGM to take up the debate. Having witnessed the once high-flying blue chip stock on the Singapore Exchange and one of Asia's largest commodity traders come to its knees, many came prepared to pepper the board with questions. They were earnest and incisive and their questions and concerns to the embattled Noble board chaired by Paul Brough were clear and well articulated.

The meeting lasted over two hours but unfolded in commendable decorum given that investors were anything but pleased. (Bear in mind that Noble's stock slumped 67 per cent in 2015, 45 per cent in 2016 and 87 per cent in 2017).

Indeed, the tale of Noble and its ignominious fall from a market favourite to most loathed as it flirted with insolvency is quite the text book case on investing pitfalls.

Noble's troubles began in February 2015 when Iceberg Research attacked its allegedly dodgy accounting ways and turned the stock into a short-sellers' magnet (Iceberg, on its part, has maintained that it has never shorted Noble stock), exacerbated further by a commodity slump.

While Iceberg's allegations have not been conclusively verified and Noble has rejected its claims - things quickly turned sour for the Hong Kong-based trader.

In FY2015, Noble suffered its first annual loss in 20 years of US$1.7 billion, owing to writedowns. Thereafter, the story of the company that was founded by Richard Elman - Noble's biggest investor - turned darker and darker; the stock dived precipitously, key executives departing, several rounds of credit ratings downgrading as debts piled up and losses widened amid a credibility fallout.

The downward spiral quickly culminated in the cash-strapped company suffering a staggering loss of nearly US$5 billion in FY2017, and desperately needing to sell off prized assets to raise money to avoid defaulting on its debt repayment.

To save itself, Noble initially came up with a revival plan that was abhorrent to minority shareholders as it was seen to tilt too much in the favour of senior creditors, management and Mr Elman.

Fortunately, retail investors had the backing of Goldilocks nvestment Company of Abu Dhabi - which had acquired a substantial stake in Noble and has a deep enough pocket to mount a legal challenge. As a result, the terms were revised to give existing shareholders a 20 per cent stake of the restructured Noble, up from 15 per cent under the previous plan.

As a result of the "interventionist" action of Goldilocks, retail shareholders may have felt less disenfranchised.

The sorry saga even extended to the Singapore Exchange, whose role as a market regulator came under criticism for not doing enough to help protect minority shareholders' interest. SGX said it has done its part by querying the company and requesting that an independent financial adviser be appointed to assess the debt restructuring plan.

The saga of Noble, a company that in its heyday was valued by the market at US$60 billion and now is worth just over US$120 million, is seen as a test case for the Singapore market in terms of regulatory wherewithal and investor safeguards.

Given that Noble has survived, it wasn't much of a test except to showcase the benefits of shareholder activism. Still, the final chapter on Noble is yet to be written.

How that turns out will depend on the new Noble's trajectory going forward.