Noble Group frames the endgame: Deal, administration or Chapter 11

Noble group said existing shareholders risk being wiped out if they don't vote for a proposed restructuring.
Noble group said existing shareholders risk being wiped out if they don't vote for a proposed restructuring.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Embattled commodity trader Noble Group issued a defence of its planned restructuring, saying if shareholders vote down the plan it will probably enter insolvency proceedings in the UK or file for liquidation, such as Chapter 11 in the US, and existing equity holders risk being wiped out.

"If the primary restructuring is not approved by shareholders, the board will have no option but to put the company into insolvency proceedings," the Singapore-listed company said in a statement on Monday (March 26), responding to queries from the Singapore exchange. At present, the plan agreed with creditors needs approval by a simple majority of shareholders, it said.

After a three-year crisis, the fate of the company - once Asia's largest commodity trader - is hanging in the balance as it attempts to push through a deal that would hand control to senior creditors, about half of whom back the approach.

The plan is fraught with risk, and comes against a backdrop of turbulence at the trader.

Last week, Noble Group defaulted on its debt, was hit by two lawsuits and saw founder Richard Elman quit the board amid a disagreement about the restructuring proposal. Its bonds dropped.

"As matters stand, the company is currently in default on certain of its debt obligations," it said. The support of senior creditors and banks is "dependent on a successful restructuring. In the absence of such support and a successful restructuring, the company would no longer be a going concern".

Noble Group outlined three possible routes that the company may take in the months ahead, depending on the approvals it gets from shareholders and creditors. Elman's role in that process will likely be important as he remains the top shareholder with a stake of about 18 per cent.

Under the so-called primary restructuring, which is backed by the board, senior creditors will take over the company under a debt-for-equity rescue, and existing shareholders will receive a much-reduced stake. This option will be followed if shareholders vote in favour.

Under the so-called alternative restructuring, the board would seek to enter administration, and ask the administrator to follow the primary plan. This option will be followed should shareholders as a whole vote against the initial approach.

In this scenario, the allocation of shares in a new company would be at the discretion of creditors, although consenting shareholders would get what was promised in the primary restructuring.

The third path leads to liquidation. Noble Group said that support from senior creditors and banks depends on a successful restructuring, and without that, it would no longer be a going concern. That may prompt a move for insolvency protection and the company listed in the statement, by way of example, filing for Chapter 11 in the US.

Noble Group's bonds have come under renewed pressure.

Last week, the 2018 notes plunged 7.5 cents on the dollar, while the 2022s were down 6.6, the biggest fall since early June for both securities, according to Bloomberg-compiled prices. On Monday, its shares extended losses, cutting the company's market value to about US$91 million.

As the crisis unfolded, Noble Group has followed a shrink-to-survive strategy, selling off assets to pay down debts, and retreating back to its Asian roots in coal trading. As Elman quit last week, he trimmed his stake in a small but symbolic move: the founder has sold shares only once previously in the company's history, he testified in a court case last year.

"The board's strong preference is for a consensual transaction among the various classes of the capital structure," it said. "The preference arises because a consensual restructuring, via the primary restructuring, is likely to result in better returns to stakeholders as a whole than a non-consensual restructuring, via the alternative restructuring, or liquidation."