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Noble's creditors in driver's seat as group seeks to slash debt

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LNG Industry,

Reuters are reporting that Noble Group’s shares slumped 12% on 30 January after the crisis-wracked commodity trader proposed a deal under which existing shareholders’ equity would be nearly wiped out, while the restructured company would have much lower debt.

Singapore-listed Noble, which had ambitions to rival the likes of global commodity traders such as Glencore and Vitol, has shrunk to its Asian roots, dealing in commodities such as coal and owning freight and LNG businesses.

This follows three tumultuous years in which the Hong Kong-headquartered company cut jobs and sold assets, some at losses, taking massive writedowns and raising funds.

Noble said it had agreed a restructuring deal with an “ad hoc group” holding about 30% of senior bonds and loans, and would halve its senior debt to US$1.7 billion. Perpetual bondholders would be offered US$15 million, or less than 4% of face value.

Creditors would end up owning 70% of the restructured company, management would get up to 20%, and existing shareholders would own just 10%.

Key for Noble will be managing its debt payments in a fashion that allows them to trade profitably again.

Last year, interest payments and the merchant’s risk of failure were seen as so high that counterparties and banks demanded steep premiums that led to steep losses for the company despite an improving commodity market environment.

Noble did not name the creditors with whom it made the deal.

Noble shares fell as much as 23% on 30 January before ending 12% lower at 0.23 Singapore dollars, giving it a market value of just US$263 million. That is in sharp contrast to a valuation of US$6 billion that it commanded in February 2015.

Noble was founded in 1986 by Richard Elman, who rode a commodities bull run to build the company into one of the world’s biggest traders, but it plunged into crisis in February 2015 when Iceberg Research started questioning its books. Noble has stood by its accounting.

Elman is Noble’s biggest shareholder with a stake of just over 18%. Other large investors include sovereign wealth fund China Investment Corp and Orbis Investment Management. Noble has been hemmed in by financing constraints – a major issue for trading houses – and it has lost many traders and analysts in recent years.

The proposed debt-for-equity deal has to be approved by regulators and Noble’s shareholders.

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