Iceberg Research

Once again, Noble’s managers are lying. This shameless restructuring plan is not the only option for Noble’s stakeholders.

April 6, 2018

Three years ago, we published a series of reports on Noble group. Our thesis at that time was that Noble, like Enron, was hiding billions of losses by creating fake assets. Many investors chose to believe this company, its auditor, the credit agencies that didn’t see any issue with the huge fair values, and the many analysts who rushed to defend Noble. Later, Noble was forced to recognise billions of impairments. The share price has plunged by 99%. The company is now in default. Top shareholders are leaving the ship. We expect Q1 results and the next quarters (if Noble is still alive) to be a bloodbath.

We have also repeatedly warned stakeholders that the root of the company’s ills was its toxic management, and nothing else. It was urgent to get rid of them, and replace them by respected professionals. Noble management’s true competence is in the art of transferring wealth from deceived investors to themselves. Again, many stakeholders chose to trust this management. Will Randall, the man who created billions of fake fair values was promoted CEO. Fox guarding the henhouse. Now that the details of the restructuring plan are public, it’s clear for (almost) everybody, that this management is made of crooks who will stop at nothing to deceive, scam, rip off and line their pockets in the process. This has always been their modus operandi. They know they have nothing to fear from their auditor that has colluded with them for years, or from the abysmal regulatory environment of the Singapore stock exchange that has been a contributing factor to this scandal. They won’t stop here.

The very same managers who have deceived thousands of investors are now presenting a highly controversial restructuring proposal. Their argument to support it is extremely simple: yes, this restructuring plan is terrible for you but the alternative (administration or liquidation) is even worse. In particular, shareholders and perpetuals would be wiped out. So you have no choice. No need to think too much or read the 168-page restructuring support agreement (“RSA”), which by the way is not even final but “indicative”. Please sign here. Thank you very much.

Once again, for Noble stakeholders the question boils down to: should they believe what this management tells them? Is this really the only option?

Here is the “good news”: Noble’s managers are lying once again. No, this restructuring plan is not the only option. It is actually the worst option and anybody with basic experience in commodity trading can see the trap. The shareholders, the perpetuals bondholders but also very importantly the senior creditors who are not part of the ad hoc group are likely to lose 100% or most of their capital if they consent to it. This plan won’t save Noble. It has never been designed with this objective in mind. The only people it will save are its managers. The only people it will enrich are its managers and the ad hoc group.

Hopefully, this time, the investors who dismissed our reports will be more critical about Noble’s claims, consider our arguments, and will avoid a major mistake once again. There won’t be a second chance: if the restructuring is implemented and the legal release clause is approved, it will be too late.

Here is a series of Q&A based on the discussions we had with investors over the past weeks.


Is the “new Noble” post restructuring financially viable?

Most of comments about this restructuring focused on its controversial aspects. The crucial question of its viability has been hardly discussed. Will this plan be successful and stop the downward spiral? Or should we expect Noble to struggle once again after just a few months? After all, a restructuring is supposed to address the causes that have led to financial distress.

The answer is obvious: this plan is absolutely not viable. In fact, it has zero chance of success and everybody at Noble already knows it. When chairman Paul Brough claims it will be business as usual after the restructuring, he lies. This man has a well documented history of lies at Noble, and he does it again. In commodity trading, you cannot afford bonds with coupon of 10%. This is a very low margin industry and the assumption that Noble with its cash flow generation will be able to pay this kind of interest is nonsense.

Noble promises a pro forma EBITDA of $175m to $200m per year. However, in 2017, adjusted net loss before interest and tax from continuing operations was (-$436m), not even close. As usual, projection numbers given by Noble are completely unreliable. This is the team that overvalued fair values by billions. Noble has repeatedly claimed that its coal business is a solid cash generator. Coal trades are booked at its subsidiary Noble Resources International Pte Ltd. In the 2016 annual report of this company, the auditor already underlined material uncertainty related to going concern. How can this be such a good business? If the coal business was so profitable, how to explain that the group is in default now. The only thing we agree on with Noble is the disclaimer footnotes: “Readers are cautioned not to place undue reliance on these forward-looking statements.”

Noble’s ability to generate cash has consistently been extremely poor. In 2017, operating cash flow (“OCF”) from continuing activities was around (-$300m). We cannot find this number in the financial statements directly but we can deduct it:

  1. We subtract the discontinued operations OCF (+$79m) from the global OCF (-$9m). That gives us negative OCF before interest expenses of (-$88m) for continuing operations.
  2. We add interest expenses (that Noble always omits in the OCF) of $212m for continuing operations.

So in 2017, the continuing operations that are supposed to become the “New Noble” bled $300m cash.

Will the restructuring materially lower financing costs? No. Post restructuring, debt will be $1.655b. Bond coupons are sky high: around 10%. That means around $165m of interest expenses per year. In addition, Noble will have to pay for the new $700m trade/hedging facility. Financing costs post-restructuring (more than $165m) will be close to what they were before the restructuring ($212m) even though debt is halved.

The people who designed this restructuring plan already know that Noble won’t be able to pay its bonds coupons. This is the reason why most of all the interests are PIK or “Pay if you can”. The exception is at the Trading Co level because this bond is closer to the business operations of Noble and its cash flows. This explains why the ad hoc group wants to get priority access to this bond. But even for the Trading Co, we expect Noble to struggle to pay its coupon.

Noble also promises to reduce its SAO expenses (salaries) from $353m to $100m. How is that even possible? On January 30th, Debtwire reported they had paid $30m “retention payment” to staff. Once again, a nice bonus in a company that has just recorded losses of $4.9b! They can’t pay their bondholders but they sure have enough money for themselves.

The plan is clearly not viable financially. The commodity industry is not a high margin industry. It’s not possible to pay coupons of 10% when you move cargoes from one point to another and you compete with dozens of similar companies.

In addition, the restructuring will cost a fortune: more than $100m as estimated by Bloomberg. This estimate is conservative.

What will happen to Noble if most coupons are not paid?

Only the coupon of the Trading Co may be (partly) paid and even here we have doubts. For the other bonds, debt will constantly grow as interest is capitalised. Obviously, Noble won’t be able to pay the debt principal at maturity. Bondholders will progressively realise that Noble is still unable to service its debt, that the paper they own has minimum value. As for the shareholders and the perpetuals bondholders who are deeply subordinated in terms of cash flow, they will understand that their securities are worth zero. The price of Noble’s securities (bonds, shares, perpetuals) will collapse once again.

Noble’s new shareholders will eventually fire management but it will be too late at that time:

  • Noble will be even weaker financially than now. There will be absolutely nothing left in the shell.
  • Most importantly, the full legal release will have been obtained. Noble’s stakeholders won’t be able to sue Noble’s managers, its directors, the ad hoc group, etc.

If the restructuring is not viable, why do management and the ad hoc group submit it?

Whether this plan is viable or not is the least of their concerns. Their true objectives are very different

1) For Noble’s managers

The top priority is to get the full legal release signed. The whole restructuring revolves around this clause.

Here is the clause:

“the full release of any and all other claims that any Existing Senior Creditor (other than ING or DB) may have against (amongst others) the Company, the Group, Management and the Ad Hoc Group and the officers, directors, employees, agents, advisors and representatives of each of the foregoing arising directly or indirectly out of, from or in connection with the Existing Senior Debt Documents or the Restructuring,”

Noble’s managers know that ultimately the ship will sink but they don’t want to spend the next few years with lawsuits. They are extremely wealthy after plundering the company and its stakeholders. They want to enjoy their future retirement, and not spend their time with lawyers and face serious legal risks.

Noble’s board of directors has also defended the restructuring. This is not surprising. These directors (and the directors who have discreetly resigned over the past years) know they can be sued at any time. Like Noble’s managers, they need the release. Noble’s board has never been representative. None of Noble’s institutional investors is represented. The last CIC director has just resigned (for “personal reasons”). Goldilocks, a shareholder who controls 8% of Noble, wanted two seats but they were turned down for “governance reason”. We believe most of these directors have been chosen due to their personal connection with Noble’s management. They cynically took the money and now they don’t want to spend time in a court of law.

2) For the ad hoc group

The ad hoc group doesn’t need the plan to be viable to make a lot of money.

The terms of the RSA are extremely favourable for its members. They will get a 5% fee on their share of the $700m trade facility. We have never seen such a huge fee for a commodity trading facility. On top of that, they get 2% of the face value of the debt they hold to “compensate” them for their work in this restructuring. That is around $34m. This “work fee” will be indirectly paid by all the stakeholders that have been screwed by the work of the ad hoc members. This fee will be paid in a few days only: April 30th.

They get priority allocation to the Trading Co bond, and to the Asset Co bond that is backed by assets (although the valuation of these assets by Noble is fictitious). They will receive fewer shares or preference shares because they know that ultimately they are worthless.

The ad hoc group members are not here for the long haul. We expect them to sell their shares and the “subordinated bonds” as soon as possible before the market realises that the new Noble is still unable to pay its debt. At that time, there will probably be rumours of a potential acquisition by a Chinese group. Since the beginning of the Noble saga, this has happened at least five times. Every time the rumours have helped push the securities price up at a critical time for Noble.

Like anybody else, they know that Noble’s management is garbage but they colluded with this management to sign a shameless deal at the expense of the other senior creditors. The deal is simple: ”You give me the release and I give you the opportunity to fill your pockets by crushing the other stakeholders.” Only ING and Deutsche Bank refused to sign the release.

Noble conveniently presents the deal as an agreement with “senior creditors”. This is absolutely incorrect. We know that the senior creditors who are not part of the ad hoc group have never been contacted and were excluded from the negotiations. They are without any doubt those who have the most to lost from this deal.

Noble is now trying to convince these senior creditors by inviting them to risk participate in its trade facility. Naturally, to do that, they are required to consent to the RSA that contains the release clause!

These creditors should think twice about what is going to happen. The ad hoc group will rush to the exit as soon possible. We expect the price of these securities to collapse once again. A new generation of bagholders will be created.

When Joseph Swanson, a financial advisor to the Ad Hoc Group at Houlihan Lokey, writes: “We look forward to consents from creditors outside the Ad Hoc Group which will smooth the path towards closing the transaction and allow the Company to shift its focus to client service and operations.”, what he really means is: “We have spent months engineering a plan that will screw them in any way possible, and we look forward to transferring their money from their pocket to ours.”

For the senior creditors outside the ad hoc group, liquidation is actually a much better option than this dreadful restructuring. The little value value left in this company won’t go to the ad hoc group, but will be equally shared between all senior creditors. As for the senior creditors who cannot or don’t want to participate in the trade facility, they will mostly end up with shares or preferentials that are worthless. They will lose everything. For them too, liquidation is a much better option.

Management insisted to get a large portion of equity. Does it mean they believe in Noble’s future recovery?

Noble’s management has insisted to get a large share of equity. We heard the argument that this would show they believe in Noble’s future. Unfortunately, this argument is incorrect.

Under the scheme, management may end up with 25% of the capital of the new company. They receive 10% to get incentivised (because, you know, they have to wake up to go to the office every morning). They will get another 10% option financed by a cashless interest-free loan refundable after 5 years. We seriously doubt Noble will be around in five years anyway. Then, they get another 5% subject to equity threshold but we know they will create a lot of fake contracts with obscure counterparties in Africa to reach this threshold. It’s a formality. The fact that a few managers responsible for the collapse of Noble potentially get 25% of shareholding has caused controversy for good reasons. It is reward for failure.

However, the controversy is missing the point. Everybody seems to fight for a piece of the cake but they don’t realise that there is no cake anymore. The price of the shares will ultimately plunge to zero once shareholders see there is no money left because financing costs are too high. We strongly believe that what really matters to Noble’s managers is not the economic value of these shares but the voting rights that go with them. This is the reason why the 10% option carries voting rights throughout the option period. Managers want to maintain as much control as possible over this company for as long as possible. If they lose control, outsiders will get access to internal records. This is the nightmare scenario for Noble’s managers.

So what is the alternative?

For every stakeholder, investing in Noble has been a terrible experience. The objective is of course to recover as much money as possible although a few stakeholders would not mind sending Noble’s managers to jail for a few years.

There may be some money left inside Noble but stakeholders need to be realistic: most of the value of this company has already been destroyed. It is now outside the company. Lawsuits against the people or organisations that have facilitated this scheme offer much better prospects of recovery.

Here are the steps we recommend to maximise their recovery

1) Recover value inside the company

  • Appoint an interim chairman/CEO with a commodity background who has absolutely no connection to Noble’s accounting shenanigans. William Randall and Paul Brough have to leave the company immediately.
  • The first job of the interim CEO will be to determine whether Noble has a future as a going concern or has to be liquidated. For the first time, Noble’s stakeholders will be given true information, a revolution for Noble.
  • If Noble is deemed viable, it will be run by a new team of experienced and respected commodity traders. There is no doubt that stakeholders will be asked to accept financial sacrifices. Debt is simply too large for Noble. But they will accept these sacrifices if new management is put in place and the toxic culture which is the cause of their losses is finally eliminated.
  • Banks will accept to finance Noble again if new management is appointed. As long as Will Randall is the CEO, we expect the banks that have recognised heavy provisions to categorically refuse to finance this company.

2) Recover funds outside the company

This is where true financial recovery is. It is then absolutely critical that stakeholders reject the release clause to preserve their ability to sue.

There is an long list of people or firms that have facilitated Noble’s scam. If Noble’s stakeholders are serious about recovering money, they should lawyer up and start proceedings, as Goldilocks has recently done.

If Noble were listed in a seriously regulated stock exchange, this job would be done by the regulators. Defending the rights of investors, especially the small ones, is what a regulator is supposed to do. In the US, the SEC has recently charged Rio Tinto and two former executives for fraud. What Rio did compared to Noble is nothing. It sounds almost innocent. It is beyond doubt that if Noble were listed in the US, the company and its managers would have been charged with fraud a long time ago.

Unfortunately, Noble is listed in Singapore. Despite clear evidence of collusion between Noble and its auditor, the “regulators” have left this scandal spread and worsen. The SGX even defended Noble’s auditor and attacked our credibility.

In the absence of any serious stock exchange regulator in Singapore, Noble’s stakeholders should take matters in their own owns hands. We welcome the decision made by Goldilocks to sue Noble. It was long overdue.

Lawsuits should be initiated against:

  • Noble’s managers (starting with Will Randall, Paul Jackaman, Paul Brough).
  • Noble’s past and present directors, starting with Richard Elman, the man who ordered Noble’s financial manipulations.
  • The auditor EY and in particular Peter Picton-Phillipps, the partner previously in charge of Noble.
  • The banks that have allowed Noble to hide its debt with repos.
  • The banks that have arranged the 2022 bond in 2017 and the $500m equity raising in 2016.
  • Etc

All these persons or organisations have deep pockets. The lawsuits will include a crucial discovery stage. We expect the legal and compliance departments of these organisations to react nervously when they receive the discovery lists. EY and the banks will likely beg for a settlement rather than taking the risk of a public lawsuit with full disclosure.

We have compiled a list of statements that we believe create a legal liability. The analysis of our reports has been based on public information. But we have little doubt that internal records will reveal much more. For example, an important question about Noble has always been whether money has been illegally transferred from the company to senior managers. Any investigation will determine this. Former employees of Noble disgusted by what happened have approached us to share information and assist. More than anybody, they want Noble’s managers behind bars.

Noble’s stakeholders who are being crushed by the ad hoc group have a very effective way to put pressure on this group. If they can find a way to sue the ad hoc group members, they will turn the spotlight to these funds (e.g. Och Ziff Capital, Davidson Kempner, Taconic Capital Advisors, etc). The cardinal rule of a hedge fund is to never be in the news. The stakeholders who are the victims of the collusion between these funds and Noble’s managers should not miss the opportunity to expose them publicly. We expect the investors of these funds to be concerned about the publicity, their association to this scandal, and start making phone calls.

Note that the legal release clause includes the ad hoc group. It is quite interesting: what are the ad hoc group members afraid of exactly? Is there something they are not particularly proud of after negotiating with Noble for months and treating the other stakeholders as a carcass to feed on? We also note that the exhibit 1 of the RSA that contained the list of the ad hoc members has been redacted. The funds fear a lawsuit and the reputation risk that goes with it.

Noble threatens to put the company into administration. Should we believe that?

Because they are bullies, Noble’s managers do what bullies do: scare people they perceive as weak. They put a gun on Noble’s stakeholders and threaten administration, transfer of assets to a “new Noble”, liquidation, transfer of centre of main interests, etc.

Most of their legal arguments are extremely questionable as underlined by Goldilocks in their recent announcement (the press covered a few points only). For example, Noble seems to assume that the administrator is its delivery boy and will work under its instructions. Sorry, this is not what an administrator is. Even if the administrator appointed by Noble is a friend of Paul Brough, his job is regulated. The administrator must act in the interests of all the creditors, not in favour of a few managers who have brought this company to its knees and who now want 25% of its equity. This is what Noble acknowledges itself: “Ultimately, the Administrator will need to determine, in accordance with its duties as an officer of the court and in compliance with applicable law, the best course of action for creditors as a whole.“ If the administrator breaches his duty, creditors have access to remedies, including asking the Court to remove the administrator.

Most importantly, if Noble is put into administration, management won’t get the release clause. As mentioned, the central objective of the restructuring is this clause. They will also lose control over the company, which will increase the risk of getting sued. Noble’s management keeps threatening stakeholders when in reality, they are the ones who have everything to lose if the company is placed into administration or liquidated. It’s a classic bluff.

By contrast, do stakeholders have really something to lose? For the senior creditors outside the ad hoc group, liquidation is a better option than what is currently proposed. The restructuring plunders what is left from the company and gives it to the ad hoc group. For the perpetuals holders and the shareholders, they will lose everything in this restructuring or in a liquidation anyway. But at least if they reject the plan, they will preserve their ability to sue. For them, financial recovery is not inside Noble anymore. It’s over. That may be hard to swallow but it’s the sad truth. Lawsuits offer much better prospects of recovery. Accepting the release clause would be a terrible mistake.

Noble claims that management is essential to the Company’s business because its core businesses are “people businesses”. Will Noble’s operations suffer if its management is replaced?

Let’s see how “essential” these managers have been so far:

  • Since Will Randall has been appointed co-CEO, the share price is down 97%. He “outperformed” his predecessor Yusuf Alireza (down 76%).
  • Noble has recorded a loss of $4.9b in 2017.
  • The company has $800m negative equity.
  • Noble has defaulted on its 2022 bond coupon (that was raised only one year ago), its 2018 principal, and its RCF interest payment.
  • We now know that most of the financial manipulations come from the Hard Commodities department, that was co-headed by Will Randall, the current CEO, and Neil Dhar.
  • Noble is widely regarded as one of the biggest financial scandals of the past twenty years.
  • A few managers made dozens of millions every year. They financially benefited from the scam they actively organised.
  • The company, Mr Randall and a few other managers, are now hit by two lawsuits: one from Goldilocks and the second one from PT Atlas. This is only the beginning.

So are they really essential? There is no need to answer this question. This level of arrogance is unbelievable. Who do they think they are? When the share price of your company is down 99% and you have destroyed the savings of thousands of investors, including retired senior citizens, you are expected to shut up, and keep a low profile.

It’s time for the silent majority to get organised and start lawsuits. Investors who have been the patsies for too long have to defend their interests much more aggressively. They are dealing with sharks. You don’t talk with sharks. You scare them (which means you lawyer up) or you hit them (which means you sue them). They won’t understand any other form of communication.

We believe that behind the scenes, Richard Elman continues to exert strong influence on the company via a few men. Executives such as Will Randall or the head of the legal department Jeffrey Alam are known for their loyalty to the founder. If Noble’s stakeholders are serious about ending the influence of Richard Elman, they need to replace these managers, and appoint executives with appropriate experience.

Can Noble expect a white knight post restructuring?

Since the beginning of the saga, how many times have we heard that a white knight, generally a Chinese group, will invest? Every time this has failed for various reasons.

  • Yes, Chinese buyers have made doubtful investment choices in the past (CIC, COFCO for example) but the accounting and management issues of Noble are not a secret anymore. They will understand that the economics of the restructuring don’t work. Noble won’t generate enough cash flow to service its debt so why would they invest?
  • Noble has quite a reputation. Every sovereign fund or institutional investor has lost money with them: CIC, Prudential, Goldilocks, etc. 
  • One key condition for investing will be to kick management out. As always, Noble’s managers will resist this move. Goldilocks in its recent announcement indicated: “White knight and refinancing proposals have been put forward to the board, and the board has rejected them, without providing any details or reasons.” This suggests that management rejects any deal that would give control to outsiders.

Can Noble secure a vote for its restructuring?

Noble needs the support of 75% of its senior creditors present and 50% of its shareholders.

Noble claims that it has 55% of the senior creditors votes. This is from the ad hoc group and the two banks (ING and Deutsche Bank) that will offer the trade facility. We have no way to check this number. Noble says that “feedback from Existing Senior Creditors to date has been positive”. All the people we have talked to find this plan absolutely unacceptable and many are considering legal options. Noble had to postpone the deadline for the subscription to the trade facility to April 11th.

The restructuring is clearly against the interests of the creditors outside the ad hoc group, the shareholders, and the perpetuals holders. The plan will not save Noble. It will only save its management, and transfer the little value left in this company to the ad hoc group.

We urge stakeholders to reject this proposal and particularly to reject any legal release clause that would absolve this management, and prevent stakeholders from suing the parties that have facilitated this scandal. This would be financial suicide.

They also need to make sure that voting procedures are absolutely independent. They should have no trust in Noble in this area.

Over the past three years, Noble’s stakeholders have been betrayed in every way possible, by management, by the auditor, by the “regulators”, by the organisations around Noble that have facilitated this scam. It is time for them to fight back. Noble is so weak now that it will take minimum time and effort to win. Let the lawsuits begin.


  1. As an ordinary shareholder, I would appreciate any advice on how to start legal action against the management who committed the fraud… I am at a loss…

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