This clause in Noble's restructuring plan is raising concern

Hong Kong-based Noble said last week that the restructuring plan is its only hope for survival.
Hong Kong-based Noble said last week that the restructuring plan is its only hope for survival.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - 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 5 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 Basil Hwang, a managing partner at Hwang Hauzen LLP, who specializes 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 maturity of bonds looms on March 20. Noble already faces opposition from a group of junior noteholders and Goldilocks Investment Co, its fifth largest shareholder. Hong Kong-based Noble said last week that the restructuring plan is its only hope for survival.

Release clauses like the one in Noble's proposal aren't 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 Pte.

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

A spokesman at Noble's external public relations firm was unable to immediately comment.

Noble's downfall was triggered in February 2015, when an unknown analyst group called Iceberg Research published critiques of the company's accounting, warning some earnings wouldn't materialize and that Noble had inflated the value of its long-term commodity contracts.

Noble has long dismissed Iceberg's claims, and consistently said its accounting practices comply with International Financial Reporting Standards.

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." A spokeswoman for Ernst & Young said she was unable to provide comment.

Read more about Iceberg's claims One incident that has prompted investors to raise questions was Noble's sale of a US$750 million bond due 2022 in March 2017, 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 Ltd. said that investors "may well" question the extent Noble's management knew of the loss.

"There was certainly talk in the market, that certain holders were going to hold the banks that underwrote the bonds liable," said Brayan Lai, an analyst at credit research firm Bondcritic Ltd. "That issue won't go away easily and I would imagine it to be on a long list of negotiation points in the restructuring process."