Noble Group's week from hell gets worse as huge lawsuit hits

The Singapore-listed firm is being sued by an Indonesian coal producer for over US$260 million.
The Singapore-listed firm is being sued by an Indonesian coal producer for over US$260 million.PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Singapore-listed Noble Group's week of woe just a lot got worse as the trader, which has defaulted and seen founder Richard Elman quit the board, was sued by an Indonesian coal miner for more than a US$260 million in a case that may jeopardize some of its remaining business.

In addition to the sum sought, PT Atlas Resources is seeking to cancel marketing deals with Noble Group and one of its units made in 2013, as well as unwinding equity transactions between the two groups, according to a court summary of the lawsuit filed by the miner in the Central Jakarta court this week. On Friday (March 23), the Hong Kong-based trader said that while it's aware of the case, it hadn't yet been served and it plans to contest the claims.

After a three-year crisis, the fate of the company that was once Asia's largest commodity trader hangs in the balance as Chairman Paul Brough battles to push through a restructuring that aims to hand control to creditors. After racking up billions of dollars in losses, the viability of the revamped business - should that win approval - will turn on its ability to generate profits from remaining operations to service a reduced debt load.

Noble Group said in the statement on Friday it's aware PT Atlas has filed the lawsuit seeking compensation of more than US$260 million.

"The company is not aware of the grounds for the claim or any further details relating to the same. Nonetheless, the company intends to vigorously defend any claim if served."

The default may have significant consequences for Noble Group if it prompts trading counterparties to walk away from contracts. Before the default, Brough had told investors it was "important from a customer and supplier perspective that we are seen to be compliant with our borrowing obligations."

On Thursday, Noble Group said it's possible, though unlikely, bondholders could force it into liquidation after it failed to pay its 2018 bonds at maturity and coupon payments, although it argued any attempt by creditors to wind it up would likely fail. That followed a blow on Tuesday, when major shareholder Goldilocks Investment Co also sued the company. Elman's resignation as a non-executive director was announced midweek.

"One by one, a lot of guys may be trying to have a go at this sort of punch," said Brayan Lai, an analyst at credit research firm Bondcritic Ltd., citing Atlas's lawsuit and Goldilocks's lawsuit earlier this week, which alleged Noble Group inflated profits to raise money. After that filing, Noble Group said it's prepared to defend the case.

Noble Group's shrink-to-survive strategy has seen the company sell off a slew of businesses worldwide, scaling back to its Asian roots with a rump business that's focused on coal trading. PT Atlas's 2016 annual report says it has a longstanding agreement with Noble.

ATLAS'S CASE PT Atlas's case, which was registered in the Central Jakarta court on March 19, is against Noble Group Ltd, chief executive officer William Randall, as well as Noble Resources International Pte. It relates to share sales of PT Alhasanie, PT Borneo Minerals and PT Sumber Daya Kumala, the Indonesian company said in an exchange statement. PT Alhasanie and PT Borneo Minerals are Atlas units, while PT Sumber Daya Kumala is no longer a unit.

The court summary said PT Atlas seeks to cancel the marketing deals, and the share sales from 2013, according to the online posting. The alleged losses include a loss of income from its coal-related business, it said. The Indonesian company's corporate secretary declined to comment on the lawsuit.

As Noble Group's crisis has escalated, the company's market value in Singapore has plummeted to less than US$93 million, with some major shareholders trimming stakes this week, including Prudential Plc. Under Brough's debt-for-equity restructuring plan it's proposed that senior creditors will take the largest stake in a new company, diluting existing holders.

"The initiation of legal actions against Noble this week further complicates Noble's restructuring," said Neel Gopalakrishnan, senior credit strategist at DBS Group Holdings Ltd. "For bondholders, the key is still whether the company would be able to turn around its core businesses, which would ultimately determine how much they recover."