SINGAPORE - Goldilocks Investment Company - an Abu Dhabi-based fund and a major shareholder of commodities trader Noble Group - has expressed shock over Noble's profit warning, and once again urged shareholders and creditors to join it in opposing the company's proposed restructuring plan.
In a note released on Tuesday (Feb 27), Goldilocks said: "These figures are extremely shocking."
Goldilocks was referring to Noble's profit guidance (posted on Feb 19), which said that the latter would book significant non-cash net losses in the range of US$1.45 billion to US$1.55 billion under exceptional items, and an adjusted net loss in the range of US$50 million to US$100 million.
Goldilocks noted that Noble's estimated non-cash net losses alone represented a 50 per cent increase on top of the cumulative US$3.051 billion net losses that was already booked in Noble's financial statements for the nine months ending Sept 30, 2017.
"These additional huge MTM (mark to market) and impairment losses would mean that the total net losses for the full 2017 financial year would balloon to a gargantuan US$4.975 billion, stripping Noble's economic value to negative territory."
Goldilocks also highlighted that US$0.9 billion to US$1 billion (about 64.5 per cent) of the US$1.45 billion to US$1.55 billion non-cash net losses are attributable to "increases in the discount rate used in the group's MTM derivatives portfolio valuations".
The fund said: "This seems to suggest that Noble has consistently overstated the value of its derivative contracts over this financial year. It also leads one to question why these adjustments were not made earlier given that Noble has already revised its valuation approach to its commodity contracts and derivative instruments on several occasions in 2017."
Goldilocks added: "More importantly, the timing of the release (less than one month after the announcement of Noble's proposed restructuring plan) leads one to suspect that Noble's management may be deliberately releasing 'exceptional' losses to pressure stakeholders to approve the only turnaround proposal on the table. A proposal which aims to give Noble's management up to 20 per cent shareholding in the restructured company!"
Goldilocks noted that Noble's justification for its management to receive up to 20 per cent shareholding in the restructured company was that "management are essential to the company's business because its core businesses are 'people businesses'", but that the profit warning indicates that Noble's remaining core business is still "haemorrhaging cash".
"The anticipated adjusted Q4 17 net loss in the range of US$50 to 100 million from its continuing businesses in hard commodities, freight and LNG operations is a reflection of Noble's state of affairs. These net losses will also erode what little cash Noble has left and puts further pressure on stakeholders to accept the restructuring proposal.
"Why should this same management that had created Noble's present debacle be rewarded, let alone so richly?"
Concluding the note, Goldilocks said that Noble is "clearly not acting in the interest of all its stakeholders" and urged all stakeholders (shareholders and creditors) to join it in opposing Noble's proposed restructuring and "work together for a more equitable and meaningful turnaround for all".
Noble is scheduled to announce its fourth quarter and full year results on Wednesday.