Release clause in Noble's plan sparks concern

HONG KONG • As embattled commodities trader Noble Group scrambles to win support for its controversial debt restructuring proposal, one focus among some observers is a clause in the plan that releases the company and its representatives from claims made by senior creditors.

On page five of the restructuring term sheet, the clause states that the arrangement provides the "full release of any and all other claims" that any senior creditor may have against Noble Group, its management, directors, advisers, agents and representatives in relation to its existing senior debt.

"Such language aims to absolve Noble, its advisers and representatives from claims or legal action related to its senior creditors' pre-existing debt securities," said Hwang Hauzen managing partner Basil Hwang, who specialises in financial regulation.

Once Asia's largest commodities trader, Noble and its largest creditors are racing against the clock to push through a complex debt restructuring as a US$379 million (S$498 million) maturity of bonds looms on March 20.

Noble already faces opposition from a group of junior note holders and Goldilocks Investment Co, its fifth-largest shareholder. Hong Kong-based Noble last week said the restructuring plan is its only hope for survival.

Release clauses like the one in Noble's proposal are not unusual in schemes of arrangements, the kind of court-led procedure that the company is pursuing. And any final interpretation would rest with the courts.

Still, it could be a hurdle for investors contemplating legal action against Noble, which has been dogged for years by criticism over its accounting methods. Noble's auditor warned last week that the company may not be able to continue operating after it posted a US$4.94 billion full-year loss.

Noble's creditors should weigh what they are giving up before they agree to the restructuring proposal, according to Keshik Capital.

"If they sign it, they likely won't be able to sue Noble, its auditors or the underwriters of its bonds," said Mr Alex Turnbull, Singapore-based managing partner at the hedge fund and a former Goldman Sachs Group banker.

In annual results last week, Noble's auditor Ernst & Young pointed to the trader's loss, bank debt and negative net assets as indicating the "existence of material uncertainty which may cast significant doubt over the group's ability to continue as a going concern".

One incident that has prompted investors to raise questions was Noble's sale of a US$750 million bond due in 2022, in March last year, just two months before the company posted a surprise net loss.

The loss prompted queries on whether there was sufficient bond investor disclosure and, at that time, MUFG Securities Asia said investors "may well" question the extent Noble's management knew of the loss.

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A version of this article appeared in the print edition of The Straits Times on March 08, 2018, with the headline 'Release clause in Noble's plan sparks concern'. Print Edition | Subscribe