LONDON (BLOOMBERG) - Noble Group is talking to creditors about a conventional restructuring that includes a debt-for-equity swap, according to people familiar with the negotiations, a move that represents a change of tack as the commodities trader fights for survival. The shares extended their surge.
After meetings in Hong Kong last week, the company is expecting a proposal from its creditors to restructure US$3.5 billion (S$4.73 billion) in debt, including a major debt-for-equity element, the people said, asking not to be identified discussing private talks. Depending on its size, the swap could wipe out a significant portion of the shareholdings of current investors.
Although a deal is some way off, this is a departure from Noble's original proposal, which involved exchanging current debt, including bonds and a revolving credit facility, for new maturities without a haircut on the face value and initially preserving all the equity of the current owners.
In that plan, the new debt would have come in three types: bonds supported by cash flows from Noble Group's Asian coal and iron ore business, an asset-backed bond secured against other physical assets, and a mandatory convertible bond.
Under the new proposal, the company will retain some key elements of its opening gambit, including debt supported by cash flows from its Asian business plus the asset-backed bond. But the balance would be through a classic debt-for-equity deal, the traditional way for companies to reshuffle borrowings.
The company's shares jumped as much as 26 per cent on Wednesday (Dec 13) to 24 Singapore cents before trading at 22.5 cents by 9.47am local time. They have gained almost 80 per cent this week, the biggest three-day increase since 2008, after closing at the lowest level in almost 20 years on Friday.
A spokesman for Noble declined to comment.
SHAREHOLDER FATE
The negotiations are continuing, and the people said that new developments in the restructuring process could occur before a deal is reached. Noble Group and its creditors have yet to agree on how much the current shareholders would retain in the new company, and how much would be controlled by management as part of an incentive package.
The company has a market value of about US$220 million, compared with total net debt of US$3.5 billion, suggesting a significant risk to current shareholders under a debt-for-equity scenario.
The discussions are expected to carry over into early January, one of the people familiar with the conversations said, describing a debt-for-equity swap as a positive step.
If the plan works, it could save Noble Group, albeit at the expense of its current shareholders and resulting in a much smaller company. Another person familiar with the talks cautioned that creditors and the company weren't close to a deal.
Richard Elman, the veteran commodities trader who founded Noble, is the largest shareholder, controlling almost 20 per cent of the stock. China Investment Corp, the sovereign-wealth fund, is also a major shareholder at just under 10 per cent, according to data compiled by Bloomberg.
As talks continue, Noble Group has agreed retention bonuses with its senior executives and traders until the end of next year, according to people familiar with the matter. The retention packages are payable December 2018 and include claw-back clauses, the same people said.
While Noble shares have surged this week, they are down 87 per cent this year. The bonds due in 2020 dropped 0.4 cent to 38.3 cents by 9.35am in Hong Kong, while the securities due in 2018 added 0.3 cent to 48.7 cents.
