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Founder of failed commodity trader Noble sues over restructuring

Bloomberg • 4 min read
Founder of failed commodity trader Noble sues over restructuring
Noble's founder Richard Elman (seen in this 2007 file picture) was a former scrapyard worker. Photo: Samuel Isaac Chua/The Edge Singapore
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The founder of Noble Group, the commodity trader that collapsed into insolvency in 2018, is suing the company over a debt restructuring that he says was unfair to minority shareholders including himself.

The lawsuit filed in Hong Kong by Richard Elman – whose stake in the company was worth more than a billion dollars at its peak – is the latest installment in the saga of Noble, which rode the China-led supercycle to become one of Asia’s largest commodity traders before collapsing just as spectacularly in a scandal over its misleading accounts.

The 83-year-old founder was a central figure in that drama, leading the company through its highs and lows and doing battle with a group of hedge funds that held its debt, before eventually supporting a restructuring deal in 2018 that drastically reduced his stake and handed control of the company to its creditors.

Now he is taking legal action over a second debt restructuring deal at Noble, which took place last year. Even after wiping out more than US$1 billion in debt in the 2018 restructuring, Noble struggled to return to profitability. Last year it underwent a second restructuring, which saw creditors take over its trading unit in exchange for a further debt reduction.

In the lawsuit, which was filed last week, Elman argues that the second restructuring deal last year unfairly benefited the company’s creditors.

“There has been very serious corporate mismanagement,” Elman alleges in an affidavit seen by Bloomberg News, claiming that the second restructuring was the result of “collusion between the directors and the controlling creditors to the detriment of the company’s minority shareholders.”

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A spokesperson for Noble declined to comment.

Elman, who was Noble’s largest shareholder before its 2018 restructuring, now owns 2.88% of Noble Group Holdings Ltd. through a Guernsey holding company, according to the affidavit.

The company said at the time that the second restructuring was necessary because its debt levels were “unsustainable.” However, Elman questions the decision to transfer ownership of the trading unit to the company’s creditors.

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Seeking Disclosure

He is seeking disclosure of board minutes, internal correspondence and contracts relating to the second restructuring and several other transactions in the past two years – a legal salvo that could be a prelude to a claim for damages.

Shareholders rank behind creditors when companies are being wound up, meaning that when a company is unable to pay its debts they often end up with nothing.

The trading unit had debts of US$1 billion at the time of the second restructuring, according to a December 2021 announcement from Noble. That compares to a valuation by Grant Thornton, prepared for Noble’s board and cited by Elman, of just US$418 million.

Elman says in his affidavit he believes the trading unit’s true value was at least US$1.07 billion, without explaining how he arrived at this figure.

The lawsuit highlights the plight of the shareholders of Noble, which for two decades was listed in Singapore and into which thousands of Singaporeans poured their savings.

While Noble’s shareholders collectively received 20% of the company in the 2018 restructuring deal, it’s looking increasingly likely that that will end up being worth nothing: after the trading unit was handed to creditors in last year’s restructuring, the company’s two remaining assets were the Jamalco alumina plant in Jamaica and a stake in UK oil producer Harbour Energy Plc.

The Jamalco stake was sold to Glencore Plc-backed Century Aluminum Co. for US$1 this year, and Noble this week started a process to distribute the vast majority of the Harbour shares — which are worth less than its total debts — to its creditors.

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