Iceberg Research

A Bad Restructuring Plan that Noble’s Creditors should reject

January 27, 2018

Debtwire announced that Noble Group may be nearing a deal to restructure its $3.5b debt with a debt-to-equity swap. Noble subsequently clarified that no agreement has been reached yet. If and when a deal is reached, creditors will have to approve it. This will not be straightforward as their interests strongly diverge. For example, the 2018 bondholders who expected to be repaid in two months are unlikely to like this deal.

Based on available information, it is clear that the framework has been poorly negotiated by the advisors who claim to represent creditors. The conditions are unfavourable to creditors and sometimes very naive. It seems the advisors had no knowledge or understanding of the accounting background of this company and its managers.

1.  Management given additional incentives to manipulate earnings

Under the restructuring, Noble would set up a new company, in which employees would own stakes with the option to increase their share if performance targets are met. Have we learned nothing from the Noble scandal? Managers who created billions of fake profit won’t find it hard to reach their targets. They need a profit of $300m this year? Here is what Noble’s managers will do. Find three obscure and cash-strapped mining companies in Africa that almost nobody has heard of. They don’t produce anything. The mine is not built and will never be built. There is no financing. The location is so far away from the nearest port that their production is uneconomic and nobody will buy from them. It does not matter. Sign a 20-year contract with each of these companies. Book at least $100m of fair value on each contract the same day based on a series of imaginary assumptions. The contracts will never be executed. They are only “accounting contracts”. Done. You have just generated $300m of profit in your books. Needless to say, the performance objectives for the year are exceeded.

Although Noble is now in financial distress, the company continues to sign highly suspicious end-of-the-quarter deals with tiny mining companies. Here is another marketing agreement signed on December 22nd. Noble is agonising and continues to sign contracts with mining companies at exploration stage. Isn’t this the way Noble has always created fictitious profit? Are we supposed to believe there is no accounting game behind these contracts?

If the performance targets include more tangible financial indicators such as operating cash flow, then the company will probably use repos as it did in the past to manipulate these numbers.

Any suggestion that these manipulations will stop is extremely naive. Noble’s management has nothing to fear from EY, or the “regulators” in Singapore that are busy looking the other way. This is now well documented. Only lawsuits will stop Noble’s management and we will cover this critical issue in our next update.


2.  The people who are the cause of this scandal will remain shareholders

Creditors are asked to swallow a massive loss in this debt-to-equity conversion. They are in this situation because a few managers around Richard Elman deceived them, manufactured the whole balance and filled their pockets in the process. We fail to understand why creditors who rank higher than equity holders need to share the residual value of this company with the few people who caused their loss.

In this poorly negotiated deal, the advisors did not understand the position of strength of the creditors. Noble’s management is forced to accept any condition imposed on them to avoid liquidation, even if the deal means Richard Elman or Will Randall’s equity is completely wiped out. The reason is that they fear liquidation far more than creditors do. Liquidation would mean that for the first time specialists from outside the company would have access to internal documents, emails, correspondence with the auditor, etc. Noble’s secrets will inevitably rise to the surface and make litigation for fraud even easier. This nightmare scenario allowed the advisors to dictate all the conditions they wanted and they failed to take advantage of it.

3.  The entry of a strategic investor after the debt restructuring

At this stage, there are few details on the potential investor, the conditions and whether due diligence has already been conducted (unlikely), etc. What we know is that it is not the first time that Noble is trying to reassure the market with the entry of a “strategic investor”. This happened many times, and generally in a critical period when Noble needed to boost confidence. For example, the name of Sinochem was mentioned one year ago as a strategic investor when Noble was already in financial trouble. The short window of optimism brought by the Sinochem story allowed Noble to raise $750m and buy a few months time. The Sinochem deal never materialised and these bondholders can only regret the decision they made.

Two major Chinese investors have already been badly burnt with Noble (CIC and COFCO) and they would probably not repeat the same mistake again. We can assume that a new investor will conduct due diligence. In the past, many candidates ran away after they saw the books. There is no doubt the carrying value of the assets and liabilities is still completely false despite billions of impairment.

It is clear that the conditions of this outline agreement have been poorly negotiated on behalf of the creditors. The same structural issues that have plagued this company will remain in the future. Based on preliminary information available at the moment, we urge creditors to reject this proposal and demand much tougher conditions to safeguard their interests. Again, Noble’s management has no choice and will be forced to accept.


  1. Okay so the bomb is in, 5 billion $ of losses for 2017…… Looks like there were accounting shenanigans going on in valuing the assets/contracts. Creditors should sue for bankruptcy or full control of the company., there are no other options

  2. There’s probably no more true assets in noble as management . Getting 25cent on the dollar would be difficult fie bondholders. Management should be sacked and replaced, i have seen companies with management that’s intent on enriching themselves by plundering the company’s coffers.

  3. Iceberg says management is still the same incompetent guys as ever. But, with creditors owning 70% of NBL cant they easily fix this if they think they go against their own interests ?

        1. Not after because the ad hoc group will have plundered Noble with their fees and failed management will own 20% of what should be yours. Its time to wake up NOW for creditors and stop being so passive. This has not worked so far.

          1. Of course, but if this plan finally gets approved (most probable scenario imho), there will still be power to fire management team after if required/wanted. Former creditors will be in control and will not allow a dumb team to run its business. Dont u think so ? ( Thanks again).

          2. We dont think the proposed plan will be approved. Understand your valid points but If creditors are passive now why would they be more active after? Our next update will present what we think in details.

      1. agree. creditors should not give mgmt a single share. they should look for a new professional mgmt and give ot stock options not shares…so only with rising share prices after they created value theu receive some reward. even top silicon valley fors operate like this…no firm in the world gives mgmt 20% for free. mindboggling.

  4. Even after all this, we have a bunch of sell side credit analysts coming out with reports estimating recovery value at over 50c and recommending participation in the new trade facility as well as support the restructuring. One analyst even had a buy on the perp at 10c!! It is such dumbness that lets managements like Noble get away with such games. Not one report questions the 20% equity granted to management. Thanks to Iceberg, Noble stands exposed as a company with no cash, no earnings and no business. Those who agree to the restructuring are just staying exposed to a shell company for longer and letting management make several millions more before the game is called off.

    1. For a bondholder, would it make sense to sell at current levels (around 55), compared to (1) reject, then wait for liquidation, or (2) accept their proposal.

  5. Nobles misdeeds have been happening for a long time. Ricardo was suing for his shares. After he, Nick and Dean set the stage. Obviously they were smart to get out but took btg commodities to the woodshed. Issue is….regulators need to examine from the start as to how this firm was worth billions and now isn’t. They had good traders like Dimitri and Andrea etc that always made money. But hiring people like Olaf and his hires didn’t help. I say full inquisition from 2006. All the incompetents will be exposed and barred from repeating.

    1. and after ruining the company and overstating assets, they want to reward themselves with 20% of the shares for free. Worse than the infamous Robber Barons in the USA of 1880ies. All asset classes should REJECT the proposal and instead sue them.

    2. Incompetence is not what regulators should investigate. That’s not their job. But misrepresentation, financial deception, collusion with auditor is definitely what they are supposed to investigate, and refuse to do.

      1. Agreed. But these crimes didn’t just start happening. They’ve happened since 2007. Many people have gotten rich from those times. The bind holders and the equity holders deserve to be able to go back in time and book the criminals.

  6. As much as you should be applauded for raising this scam in the first place, it has reached a point where it’s not a simple ‘reject’. Many competing interests, and they are not all screwed by the same magnitude, some more than others. Even within the bond holders 2018 thinks they are more senior than 2020/2022. Not to mention the perps…if everybody simply rejects, the company would presumably, eventually go into liquidation. would creditors be better off then, compared to current proposal?

    1. No we precisely disagree with the idea coming from Noble that it’s either this or liquidation. You believe their bluff. We will explain that in detail later (previous comments were before the details were announced).

      1. With this kind of slap in the face treatment for perpetual bond holders, we rather see the company liquidate than to get our few cents. What a joke.

      2. Having seen many of the restructurings in the SGD bond market, this is the common game played by management – that if you liquidate us you get zero, so you better agree to the crappy restructuring we offer. Noble’s goes one step ahead in the sense that existing bondholders also are incentivised to put in new cash. This is a new low in restructuring deals. It is quite clear now – the choice is between taking zero now OR put in some new cash and lose that along with everything else two years down the road. Better to call the bluff now and move on! One is better off trying legal options against the company and management rather than going through the pain of the restructuring.

  7. DEAR ICEBERG, the worst screwing is against the PERPETUAL HOLDERS. Please write something to encourage them to VETO THE RESTRUCTURING. These terms are so incredible, I wonder how they can come up with this. They want to get 20% of the shares FOR FREE and WIPEOUT NEAR TOTALLY other loyal investors. The way how they treat perpetuals should be worth a story for you, as it shows how incredible extreme they are. Maybe you can even help bondholders to form groups to ensure there are more than the necessary 25% of bondholders to veto the proposal. Especially the perpetuals, where no restructuring at all is necessary, there is no maturity and also no payout obligation at all unless the company is paying dividends again. Noble can recover without any disadvantage if the perpetuals are not restructured.

    1. Hi `Perpetual Investor’, I’m a journalist at Bloomberg following up on how perpetual bondholders feel about the way they are being treated in Noble’s restructuring and was wondering if you might be able to speak? If so, I can be reached at [email protected] – Thanks, Denise Wee

  8. Trafi’s annual is ‘Impressive too’. “We will ensure that our liquidity position remains extremely robust even in conditions of extreme volatility and stress” To this end we have developed close and trusting relationships with our banking partners and it is high priority to maintain these by demonstrating maximum transparency on all our transactions”.

    ▪-5,5 Billion negative operating cash-flows.
    ▪31.5 Billion Debt

    Plenty of solid businesses there ready to get offloaded at Trafigura

  9. I would just like to add a few points:
    1) Management was the culprit responsible for this mess and is somehow rewarded at the end of the day. Interestingly there was no requirement for any director to be held accountable for the mess and step down. How is this fair?
    2) As reported on the news, Noble has offered retention bonuses to employees. Keeping the company afloat would only allow management to award themselves with obscene retention bonuses (think back on Yusuf suing Elman for $50 or $60 million worth of shares). Its interesting to note that Noble does not disclose remuneration of top management due to ‘competitive’ reasons (while we can clearly see Rio Tinto’s CEO’s pat package): Creditors should find out what are the terms of these remuneration packages, and how much obscene bonuses have management paid themselves historically. Creditors have to embed a clawback on bonus clause, at the very least.
    3) I find it hard to believe that banks would grant credit facilities to Noble after this saga, particularly with the same management and employees who caused the mess in the first place. Without access to working capital facilities, how would a trading house survive? Even with the substantial debt reduction, the reputation of Noble is already in tatters.
    4) While Ivan at Glencore pumped in his own money during the commodity downturn, we didnt see management at Noble committing their own capital. This shows the extent of confidence they have in the company. Even Richard Elman subscribed to share options only to sell most of them quickly afterwards. Why should creditors have confidence in the company?

    The restructuring proposal is bullshit and should be flung back at whoever proposed it. Most importantly, creditors have to press for changes at management and employee level.

  10. I agree. Bondholders should get all cash …about 800m plus another 700m new bond collateralized by all assets for sale. There could be a remaining new bond of 600m. 800+700+600=2100m = 60% of bonds plis rcf outstanding. The remaining $1400m to be swapped in equity. This would be about 7bn shares at actual prices…80% of the enlarged capital. This would be an appropriate deal. Anyway 2018 bomdholders should not restructure. Noble has more than enough cash to pay the 2018 bond.

    1. There are many but two central questions with this Restructuring.

      1. But what Cash ?
      ▪$749.04M for $421M negative operating cash-flows from the day to day operations.
      ▪The market is not resolutely confident that Noble has the $400,000,000 cash to repay the 3.625% coming at maturity in March 2018. Sorry but this cash is tied to broker margins (in other words already collaterized)
      ▪Recently “hard cash” that we thought Noble Group Ltd. had on the balance-sheet attributed to BUs was discounted in transactions (Noble Americas Corp, Noble South Bend) by up to 50%.
      ▪We just know for an absolute fact that the debt is $3,500,000,000

      ▪At 5 to Midnight say promising words like new ‘Investor’ … it is not too early to make appear the white rabbit out of the empty top hat. Again this raises distrust that the debtor can’t pay the $400,000,000 principal and coupon expiring in March 2018

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