Noble outlines three possible routes ahead

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 Britain 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 yesterday.

At present, the plan agreed with creditors needs approval by a simple majority of shareholders, it added.

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 defaulted on its debt, was hit by two lawsuits and saw founder Richard Elman quit the board amid a disagreement over 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 outlined three possible routes it may take in the months ahead, depending on the approvals it gets from shareholders and creditors. Mr 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 said 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 United States.

As the crisis unfolded, Noble has followed a shrink-to-survive strategy, selling assets to pay down debts.

As Mr 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.

"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."

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A version of this article appeared in the print edition of The Straits Times on March 27, 2018, with the headline 'Noble outlines three possible routes ahead'. Print Edition | Subscribe