SINGAPORE (Jan 29): Noble Group reached an in-principle deal to restructure US$3.5 billion ($4.6 billion) in debt, saving the troubled commodity trader from bankruptcy at the cost of handing control to creditors and all but wiping out current shareholders.

After a three-year crisis marked by massive losses, writedowns and controversial accounting, Noble management, bank creditors, and bondholders reached an agreement that will convert half of the debt -- roughly US$1.7 billion -- into new equity, the company said on Monday.

"This agreement marks the beginning of the final phase of our restructuring, and the creation of a new Noble as a focused and appropriately financed group set to capitalise on the high-growth Asian commodities sector," Noble Chairman Paul Brough said in a statement.

The creditors, including hedge funds Och-Ziff Capital Management LLC, Davidson Kempner Capital Management LLC and Taconic Capital Advisors, will control 70% of the new company, while current management obtaining as much as 20%. Current shareholders, including founder Richard Elman and China’s sovereign wealth fund, get just 10%.

While saving the company from complete failure, the deal, which follows a series of asset sales in recent months, will what was once a challenger to global trading giants such as Glencore Plc to a rump business focused on coal in Asia.

Elman, now 77, started his career as a teenage scrap-metal worker in England, and built his trading house by buying assets here and there. From a small office in Hong Kong supplying Chinese steelmakers with iron ore, manganese and chrome in 1986, Noble grew into a US$10 billion Singapore-listed trading behemoth with an investment grade rating and access to unsecured capital. At its closing price today, Noble’s equity was worth just US$263 million.

Noble now needs to seek approval from all the parties involved in the deal, including shareholders, a process that could take as long as five months. Noble also needs the approval of holders of its perpetual bonds, who will suffer large losses. The company has proposed converting US$400 million worth of perpetuals into up to US$15 million in new securities.

The deal vindicates Iceberg Research, the anonymous research outfit whose critiques of Noble’s accounting in early 2015 marked the start of a drawn-out crisis that has brought the Hong Kong-based company to the brink of collapse. Iceberg stated more than two years ago that the equity of Noble was largely worthless.

It was Debtwire which last week first reported the commodities trader had reached the framework of an agreement to restructure its debt, with some issues to be worked through.

See: Noble Group strikes US$3.5 bil debt restructure deal

In a blog post on Saturday, Iceberg urged Noble's creditors to reject the debt-for-equity swap. Instead, creditors should use the threat of liquidation to demand tougher conditions to safeguard their interests.

See: Noble's giant writedown proves Iceberg Research right after two-year fight

"Liquidation would mean that for the first time specialists from outside the company would have access to internal documents, emails, correspondence with the auditor, etc. Noble's secrets will inevitably rise to the surface and make litigation for fraud even easier," wrote Iceberg.

Noble has been negotiating the restructuring since November in a bid to save itself from looming insolvency. Brough spent the last few months shuttling from Hong Kong to Singapore to London, negotiating with banks and bondholders to restructure the company. Noble is headquartered in Hong Kong but listed in Singapore.

The new company -- in reality two entities where one is in charge of trading and another holds Noble’s remaining assets -- will have debts split in three categories: US$685 million in secured debt due in 4 1/2 years; another US$270 million in senior secured debt due in seven years; and US$700 million in an asset-backed bond due in 3 1/2 years. On top, creditors will receive preference shares worth US$200 million.

Despite the financial pain, Brough, a veteran of multiple company crises in Asia, including the bankruptcy of Lehman Brothers in the region, claimed mission accomplished as he saved the company. "I have consistently stated my objective of avoiding any form of insolvency proceeding," Brough said.