Noble's debt revamp plan kicks up storm

Singapore

NOBLE Group's restructuring plan left the market in uproar on Tuesday, with both shareholders and unconsulted creditors deeply upset over what they viewed to be unfair terms.

The plan also triggered yet another credit rating cut for the company's bonds by two credit rating agencies, with one saying it is "tantamount to an immediate default".

The outsized equity stake that the firm's management will have in the restructured entity raised eyebrows, and led to at least one major shareholder, Goldilocks Investment Company, questioning whether the management has breached its fiduciary duty to the company and its shareholders.

Compounding the maelstrom for Noble, Moody's and S&P on Tuesday evening further downgraded their junk ratings on the company's bonds. Moody's said it will be a default event if the deal is finalised; S&P warned that it will in future likely lower the rating to "D" - the lowest junk-bond rating, indicating that the firm will default on most or all its obligations.

S&P analyst Danny Huang said: "We view the offer as a distressed exchange tantamount to an immediate default on conclusion because the offer price is materially lower than the par value of the outstanding notes."

Goldilocks, an Abu Dhabi-based investor which holds 8.1 per cent of Noble, urged the regulators to launch an investigation into the company.

Minority investor advocacy group Securities Investors Association Singapore (Sias) also stepped in, urging the firm to offer existing shareholders a deal similar to that offered to the management.

Noble's shares plunged to as low as 20 Singapore cents, but ended the day at 23 cents, still down 11.5 per cent.

However, its bonds maturing in 2020 rallied, rising 14.5 per cent to trade at 56.7 cents on the dollar - its highest level in eight months.

Noble said on Monday evening that a group of senior creditors representing about 30 per cent of its bonds and revolving credit facility, had agreed to swap their debt for a combination of new debt instruments and equity in the restructured group (see graphic).

They will also provide the group with a three-year committed trade finance and hedging facility of up to US$700 million - on competitive market terms - for its commodity trading businesses.

The new company that will hold all of Noble's businesses and assets will ultimately be 70 per cent owned by these senior creditors, 20 per cent by the management and 10 per cent by existing shareholders.

The details of the restructuring plan appeared to be the final straw for many stakeholders, who are upset that they had been shut out of the negotiating process with little communication from Noble.

A complaint from Goldilocks landed on regulators' desks on Tuesday, even as other individual bondholders threatened to veto the plan.

In its letter seen by The Business Times, Goldilocks said that members of Noble's management seemed to have focused on their own interests in the new entity over that of the company's shareholders and creditors.

Goldilocks was not alone in holding such a sentiment. A minority shareholder told BT: "It is ridiculous that the management still gets to own so much when it is to blame for this sad state of affairs - consistently not taking ownership for wrong decisions which have surprised creditors and shareholders in the past, and instead blaming the situation on market forces."

Sias president and chief executive David Gerald noted that the main gripe by Noble's shareholders and noteholders is the steep cut in their shareholding, and the favourable terms for the management.

He said in a statement: "Creditors and shareholders would be scratching their heads as to why there is special treatment for the management. What is the basis for the special treatment of the management?

"There is a perception among shareholders and creditors that the management should take responsibility for the current predicament of the company."

He also asked why the restructuring cannot offer existing shareholders a deal similar to what is being given to the management.

Meanwhile, a group of individual bondholders for Noble's notes expiring on March 20 this year said it is planning to veto the restructuring plan.

Given that the 2018 bonds are due to mature in less than two months, it is "ridiculous" to treat all bonds the same, said a spokesman for the group.

Noting that the number of institutional investors in Noble's bonds has fallen substantially in the past few months, the group believes that Noble will be unable to control the results of bondholders' meetings.

She declined to reveal how much of Noble's 2018 bonds the group represents, and would only say its membership is growing. "We can easily veto Noble's restructuring".

Goldilocks, in its letter, also raised other questions, including why Noble's sales of its businesses and assets had been done at steep discounts to their book value.

The fund said that despite its having highlighted these concerns to the board, the company had neither given a satisfactory explanation of the sale processes nor said whether safeguards were in place to ensure that the assets were disposed of at fair value. These raised questions of whether the board has been negligent in the sale process, or deliberately undervalued the transactions, said Goldilocks.

The fund, which entered into Noble only last year, also flagged the pattern in the timing of the company's announcements on potential investors, and the corresponding share price spikes, some of which preceded capital-raising exercises.

In addition, Noble's announcements of its asset disposals have carried sale price figures that were usually adjusted or reduced downwards upon completion, it noted.

Based on these, Goldilocks "believes that there are grounds for an investigation into Noble and its directors and management" to ensure that no impropriety has occurred and minority shareholders have not been disadvantaged, it said in the letter.

It also reiterated its request for a representative to be appointed to Noble's board.

The fund declined comment for this article.

An SGX spokesman said Noble's proposal is subject to the exchange's approval, and that it will consider in its review the compliance of the scheme with listing rules, and whether it is prejudicial to shareholders' interest.

"In particular, SGX will ensure that the appropriate level of shareholder approval is sought to approve the scheme."

The exchange added that it will also require the company to respond publicly to the allegations in Goldilocks' letter. "If the allegations are substantiated, we will take the appropriate regulatory action."

Noble is planning to file schemes of arrangement in Hong Kong, Bermuda and the UK; an external spokesman for the firm said it is not required to file one in Singapore.

It will also hold an extraordinary general meeting for shareholders to vote on the plan, with at least 50 per cent approval required for it to pass.