SINGAPORE (Apr 19): Noble Group is currently in default on US$3.4 billion ($4.5 billion) of its financial debt obligations and the group can only survive with the support of its creditors, says chairman Paul Brough in an open letter to shareholders on Wednesday.

See: Noble Group sweetens debt restructuring deal, gets founder's backing

Noble's restructuring support agreement (RSA), which involves a debt for equity swap, has already won the backing of over 83% of holders of its senior debt, but needs a majority of its shareholders to approve the restructuring.

Under the RSA, Noble will get a writedown of US$1.8 billion of senior debt.

According to Brough, this is the only way the group can continue as a growing concern given there is a possibility all of the group’s liabilities can be restructured under the terms of the RSA.

Noble on Wednesday said it will drop a provision in its debt restructuring proposal that placed restrictions on shareholders voting against the plan after criticism from the Singapore Exchange (SGX).

But in order for the RSA to be properly executed and concluded, the group will need support from its shareholders, says Brough.

In the event creditors of the group stop their support, the group may have to bankrupt. Decisions over the future of the group will then be out of the board’s hands and placed in the hands of court-appointed officers.

The value of the group’s assets would be distributed in accordance with the parties’ legal rights and the creditors rank ahead of the holders of perpetual securities and the shareholders.

In this scenario, given the group’s assets are valued lower than its debts, shareholders and holder of the group’s perpetual capital securities will receive "nothing" in an insolvency process.

Hence, Brough encouraged shareholder to vote in favour of the restructuring during a special general meeting that will be convened in due course.

Following this announcement, Lim & Tan Securities in a Thursday report says, “We continue to see little economic value for current equity holders of Noble Group given the massive dilution of 85% that they will suffer immediately in New Noble Group (even with the approval of the RSA). We see Noble’s equity holders being stuck between 'a rock and a hard place' and hence would continue to avoid the stock.”

To recap, Noble on Monday agreed to boost the amount that current shareholders would get in Noble to 15% from 10% if the debt restructuring occurs.

That got Richard Elman, 18% stakeholder and founder, on board. But 8% owner Goldilocks continues to fight the plan. On Thursday, it asked fellow shareholders to reject recent board appointments at Noble's coming annual meeting

As at 11.30am, shares in Noble are trading at 11 cents.