SINGAPORE (Aug 27): Shares in debt-laden commodities supplier Noble Group were up 33.9% in the week before a key vote on its restructuring. The Straits Times Index had gained 1.3% in the same period. Noble’s rebound may have been driven by Deutsche Bank’s offer to buy the company’s senior unsecured bonds at 45% of face value. Noble is currently in default of debt obligations worth US$3.5 billion ($4.8 billion), and in the absence of a successful restructuring will be required to seek insolvency protection or go into liquidation.
Investors may see Deutsche Bank’s offer as a sign that the bank is confident of a Noble recovery. But, the bank is serving its own interest in supporting a plan that would turn Noble around. Deutsche Bank already has some senior claims on Noble and is among the parties that have agreed to underwrite additional financing for a restructured Noble. In March, Deutsche Bank joined an ad hoc group in signing a restructuring support agreement that provides for a three-year committed US$600 million in trade finance and a US$100 million hedging facility.
Deutsche Bank’s support comes amid strong criticism of Noble’s management as well as the restructuring plan. On Aug 14, Iceberg Research, helmed by former Noble employee Arnaud Vagner, called for those holding Noble shares, bonds and perpetuals to join in a suit against Noble’s managers and the parties responsible for the value destruction at Noble. Iceberg says it has talked to experienced law firms that are ready to represent the interests of these investors, and litigation funders that are interested in financing these lawsuits.
According to Iceberg, the same team that “sank Noble and paid itself dozens of millions every year is not held accountable”. Among Iceberg’s criticisms of the restructuring was that Noble founder Richard Elman was due to take up an appointment as executive director of the restructured Noble. “The new Noble looks a lot like the old Noble: same management, same director (Elman), about the same financing costs,” Iceberg said in a May 15 post on its website.
On Aug 20, Noble announced that Elman would no longer be taking up the appointment, “for personal reasons”.
A former senior managing director of Temasek Holdings, Michael Dee, is also suggesting legal action against Noble. “Every Noble security holder who lost money should absolutely be suing everybody — Richard Elman, Noble’s current and former management and board, Noble’s auditor Ernst & Young, the commercial and investment banks, the research analysts, the rating agencies and the regulators,” Dee tells The Edge Singapore.
Dee, who was also formerly the CEO of Morgan Stanley Southeast Asia, adds that he has great respect for Singapore. “Singapore has a well-deserved and -established reputation for regulatory excellence. In the Noble case, however, they were well informed and yet have failed miserably over 3½ years to protect investors and maintain the integrity of their financial markets. Their excuses are lame and misleading, their investors have lost billions and, worst of all, they have shown others who would deceive that there is little risk of being held to account,” he says.
He points out that Yusuf Alireza, former CEO of Noble, is now suing Elman personally for at least HK$450 million ($78.6 million) in unpaid compensation. “The fact that he is suing the founder, and not the company, tells you that he knows where the money is, and it’s not at Noble. That Noble never disclosed management compensation deals like this perfectly demonstrates the lack of transparency, deception and disregard for investors.
“Singapore’s regulators, if they really care about investors, and their own reputation, should halt the restructuring agreement, demand full disclosure of the last 10 years of management and board compensation, and appoint a world-class, fully independent forensic accounting firm to [investigate whether] Noble has been running a criminally fraudulent accounting programme that has precipitated the collapse of the company,” Dee says.
Noble’s shareholders will vote on the restructuring plan at a special general meeting on Aug 27. The proposal involves the creation of New Noble, which will be 70%-owned by Noble’s creditors, 20% by existing shareholders and 10% by Noble’s management. New Noble will acquire certain assets from Noble and take over Noble’s listing on the Singapore Exchange.
Deutsche Bank’s offer is expected to improve the chances of Noble’s proposed restructuring plan being approved. According to a Bloomberg report, Deutsche Bank says it is acting for itself and that the purchases are part of the bank’s market-making activities. Its tender offer expires on Aug 24. Noble bonds due in March this year closed on Aug 22 at 47.25 US cents on the dollar, while its bonds due in January 2020 closed at 48.25 US cents on the dollar.
This story appears in The Edge Singapore (Issue 845, week of Aug 27) which is on sale now. Or subscribe here.