Category Archives: Physical Trading

2.2 Million barrel equivalent per day ? Deal of the decade or write-off ?

Great,

the franchise loses $1.25M per business day

Heh, I would steer clear as well.

Pilot Flying J

Why they would need pipelines.

They are not even traders….

It’s truck stops..

Yu sent the following messages at 9:39 PM

Yeah its puzzling

they are just a supply and dist

It’s trucks stop dudes.

why they would want to maintain a 1B$ credit facility… and inventory. There is no money in moving diesel above the rack in the U.S since at least 2 years.

Noble loses money I think 2 or 3 million per business days in recent quarters. stay clear.

Yu sent the following messages at 9:40 PM

Did they do any arb plays to Latam or UK?

 9:39 PM

very few

no tankers data can certify this

no AIS data or shipbroker that we know

“Noble’s oil business traded as many as 2.2m barrels a day in 2017”

seems a lot exaggerated,

just my opinion

Yu sent the following messages at 9:52 PM

They making it sound as if their oil business is a silver lining.

Could’ve been derivatives overstated as well.

Truth is hard to find in the industry these days.

Maybe Noble Group’s Treasury head (Wildrik de Blank) that has quit the company on August 31th could tell.

How Noble can even claim or imply seriously trading over 2.2 Million barrels or equivalent per day ?!

And where are found these barrels ?

Noble had a mere inventory-in-transit of $2.6 million dollars at the end of 2016.

Like for its MTM commodity derivatives and contracts gains revisions, at so many occasions, Noble has marked down its sales book to catch-up with reality.

 


 

 

 

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The negative significance of Noble (來寶集團) Mark-to-Markets Gains on Derivatives and Commodity Contracts

Noble Group at the dusk of an agonising death spiral.

The only reproach that one could do to Iceberg Research is that he didn’t communicate well enough his message so people understand the negative significance of this $3.4B MtM or on what Noble Group (來寶集團) underpins its financial substance: a skeleton.

What is MtM and how a $3.4B MtM would translate into coal hedges)…  

Noble group fraud mtm

noble group enron

Mark-to-market (M-t-M)

To mark-to-market is to calculate the value of a financial instrument (or portfolio of such instruments) at current market rates or prices of the underlying.

http://www.risk.net/definition/mark-market

Example for illustrative purpose:

On 1 Jan 2017: Noble buys 2,000,000 MT for June 2019 delivery at $59/mt. It turns immediatly in the derivatives market and sells the equivalent of 2,000,000 MT of paper contracts. This is the Coal API2 Argus futures contracts.

This is the Coal API2 Argus Futures Contracts.

COAL API2.png

Timeline

1 Jan 2017: Noble has a +MtM of 0 (Contract price is $59 and the Argus Futures is at $59)

1 Feb 2017: The Argus Coal API2 futures is at $64,25. The +MtM on the coal contract is +$10,5M

20 March 2017: The Argus API2 Futures dropped to $59,25/MT The +MtM on the coal contract is +$500K

1 May 2017: The Argus API2 settled at 62,55 and the +MtM on the coal contract is now +$7,1M

Noble Group MtM on Coal contract:

mtm coal noble group.png

At any given time, the 2,000,000 MT of Coal produces a MtM gains between $500K and $11.5 millions.

seanergy-maritime-capesize

Capezize Ship

When Noble announced a first-quarter loss of $130m— it blamed largely on ill-judged coal trades—and it warned that it might not return to profitability until 2019.

Can you better put in context the warning that it might not return to profitability until…

These “Hedging losses” are rather because of a mismatch between the level of profits booked on these contracts and their underlying cash-flows.

In order to produce $3.4B of MtM gains, Noble would have to buy not 2,000,000 MT of coal , as in this example, but book nearly 958 million metric tonsthe equivalent of 6937 Capezize cargoes Richards Bay-Qingdao, China or 5 voyages per week for the next 13 years…

This represents a considerable tonnage even for the largest firms of the industry (Cargill, Rio Tinto, BHP, Vale, Anglo American)  all put together and more than 1.21 year of world coal production*

 

 

the Noble Files 高贵组文件 研究

**According to BP statistical review of word energy 2016, the world coal production was 786.1 million tonnes (2015)…

This time Noble (來寶集團) will work for itself, not for the banks…

Last year we predicate that refinancing Noble (來寶集團) would be a lose-lose deal in which everyone would end up looking bad.

 

“At some points the Banks must get out, must unload the RCF risk with the red pill and it means that Noble will work for the Banks”.

“This is the equity offering of a company with very questionable or no prospects, transferring risks to retail investors”.

In short, this is a lose-lose deal in which everyone ends up looking bad”.

Refinancing Noble: a Lose-Lose Deal

March 16, 2016 

–  the Noble Files 高贵组文件 研究

The only thing we got wrong in 2016 is that some Banks would still accept to refinance the liabilities of Noble (來寶集團) on the back of an equity raising.

The investors have eaten the red poison pill and we simply overestimated their level of sophistication.

Can anybody look back and say it was good to let Noble raise more than 1.2B in equity offering and bonds ?

  • The 750M bond raised is traded at 40c on the dollar.
  • Equity investors who also subscribed to the 500M share rights issue at 0.20/share are now at 0.03…


Success can’t be imposed on this circus.

As of Q1-2017, Noble Group (來寶集團) had $3,4B of marked-to-market fair-value gains on derivatives and commodity contracts.

What does the $3.4B MtM figure represents ?-this MtM is not contracts that can be liquidated to cash.

Given that the Operating loss is created by a mismatch between the level of profits booked on these derivatives and commodity contracts and their underlying expected cash-flows, the real nature of this MtM can be viewed as an expensive liability that Noble (來寶集團) has to roll-out.

Noble (來寶集團) has even pushed back against guidelines in Singapore for disclosing information on its executives’ remuneration.

Perhaps Noble (來寶集團) needs to raise another 2B to pay coming debt retirement (reassure the lenders that they refinance the fair to arrive net equity on a future solvency basis) – as the book doesn’t generate positive cash-flow since 44 months.

It is no longer a working capital shortfall that we observe but the liquidation of a trader  (virtually silent in the physical market)…

Lenders will choose to roll up credit. IF not, they precipitate a restucturing which is told to be not in the interest of the 2020 and 2018 bond holders (FT).

 noble group fate.png

It should be pretty clear.

This time Noble (來寶集團) will work for itself, not for the banks.

On the road show, Noble has asked the permission to decrease its net equity.

It wants to set its own “term sheet” and its covenants to be relaxed, exactly the opposite wanted by the other side.

4 Banks are long with a $1.5B exposure left with this intermediate situation :

 

 

the Noble Files 高贵组文件 研究

Banks Chasing the”tails” in Hong Kong -The Noble Group (來寶集團)

Noble Group (來寶集團) has no or few audited flow supporting their 48B$ sales of commodities.

According to the industry, their turnover, by any account, would appear as vastly overstated.

At an average of 10 days shipment and with cost of the goods sold of $48.58B FY16, the average inventory in transit recorded by Noble would have to be at least $1.256B. The the audited number was only $2.6M FY16.

FY2016 The average transit time of Noble was now 0,019 days, either implying that Noble has used scuds to ship the company  or that the corporation had a COGS inflated by 10 to 15 times in 2016.

Noble Group inventory in-transit

Noble Group Ltd. Financial Statements 31 December 2016

As of May 2017 the company had YTD losses (330) Millions in operating cash-flows but self-assessed itself with a net equity of $3.849B while of this net equity is tied to the fair value gains of its derivative and long-term commodity contracts.

Iceberg Research, the research firm has challenged Noble Group (來寶集團) over mark-to-market accounting of these contracts.

Bankers know that the last 24 months have been punctuated by a series of catastrophes, credit downgrades and bizarre resignations at Noble.

CEO ex-GS Alireza, Mr. Elman and Noble Group’s chief financial officer Robert van der Zalmin in particular who has stepped down from his position after taking a leave of absence for “health reasons”.

Traders (smart money) have also left at the right time. (Fabrizio,Steve Bader, Paolo B, Ted, Doug M..)

As of Q1-2017, Noble Group (來寶集團) had $3,4B of marked-to-market fair-value gains on derivatives and commodity contracts.

What does the $3.4B MtM figure represents ?-this MtM is not contracts that can be liquidated to cash.

noble group enron

Mark-to-market (M-t-M)

To mark-to-market is to calculate the value of a financial instrument (or portfolio of such instruments) at current market rates or prices of the underlying.

http://www.risk.net/definition/mark-market

Example for illustrative purpose:

On 1 Jan 2017: Noble buys 2,000,000 MT for June 2019 delivery at $59/mt. It turns immediatly in the derivatives market and sells the equivalent of 2,000,000 MT of paper contracts. This is the Coal API2 Argus futures contracts.

This is the Coal API2 Argus Futures Contracts.

COAL API2.png

Timeline

1 Jan 2017: Noble has a +MtM of 0 (Contract price is $59 and the Argus Futures is at $59)

1 Feb 2017: The Argus Coal API2 futures is at $64,25. The +MtM on the coal contract is +$10,5M

20 March 2017: The Argus API2 Futures dropped to $59,25/MT The +MtM on the coal contract is +$500K

1 May 2017: The Argus API2 settled at 62,55 and the +MtM on the coal contract is now +$7,1M

Noble Group MtM on Coal contract:

mtm coal noble group.png

The 2,000,000 MT of Coal produces a MtM gains between $500K and $11.5 millions.

seanergy-maritime-capesize

Capezize Ship

In order to produce $3.4B of MtM gains one would have to buy not 2,000,000 MT of coal , as in this example, but nearly 958 million metric tons – the equivalent of 6937 Capezize cargoes Richards Bay-Qingdao, China or 5 voyages per week for the next 13 years… plus an equivalent position in the derivatives.

This represents a considerable tonnage even for the largest firms of the industry (Cargill, Rio Tinto, BHP, Vale, Anglo American) put all together.

According to BP statistical review of word energy 2016, the world coal production was 786.1 million tonnes (2015)…

An inevitable conclusion is that Noble uses a mountain of derivatives to maintain its MtM coal pile or … something else

Back-of-the-envelope calculations suggest that the $3.4B MtM mark used by Noble Group(來寶集團)  translates to coal hedges at 479 USD/MT– The Argus APi2 CIF Rotterdam futures in the $60s/mt.

So…. Accounting fraud …. ?

Won’t  be the first time…

These days Noble is looking to refinance a $3.849B net equity. which has more the financial substance of a “Fair-value to-arrive equity” (sic)

This happens at a moment when Noble has just screwed up both its recent fixed income investors and shareholders.

The thing that frightens banks the most is not having a good risk management process in place because it opens the possibility of financial losses and frauds. A trader with no risk management is like playing roulette; double or quits.

Fraud is the worst nightmare for any bank specialized in commodity lending, but some will always chasing the“tails” in Hong Kong no matter what.

the Noble Files 高贵组文件 研究

Noble’s only escape is to borrow more debt to cover its debt service and booked net equity.

Like Wilmar, Noble had not 2 but 3 years to renovate itself and they failed.

  • Noble Group (來寶集團)  has generated negative cash-flows from the operations to the tune of
    -$1600M in 2014
    -$600M in 2015
    -$900M in 2016,
    -330M for Q-1 2017
    Noble has no intrinsic value by DCF. The book is not performing.

The market is not over-reacting.

The question is now rather about how Noble can still suggest that they are a $3.9B equity company (” their fair-to-arrive net equity”). 

Simply because Noble knows it cannot devalue its substantial booked value.

  • Q1 Noble Group Limited.png
  •  Bye Elman, the chairman and co-founder has officially resigned.

Noble has screwed up itself, its fixed income investors and its shareholders.

  • Only two months ago investors were lured by a 8.75% coupon  750 million unsecured bond. The maneuver was purposely to win time and bridge financials until Noble could conclude a potential deal with an acquirer (Sinopec).
  • No immediate performance catalysts suggest that this transaction is even remotely possible.

Noble nobbled.png

  • This unsecured bond issued at a 8.75% is now trading at 50. We no longer talk of yield to maturity but recovery rates.
  • This bond has to be refinanced next April.
  • By what ?
  • You need to factor if Noble can issue another 750M bond this time at 18-20% coupon and assume that the same investors bited by the snake will want to lose 100 to 50.
  • Equity investors who also subscribed to the 500M share rights issue at 0.20/share are now at 0.05.
  • Can some undisclosed aspects of Noble performance could have made the company less attractive to these investors ?


-The trader has lost $5.5M of Operating cash-flows at the end of each business day Monday-Fri during Q1.

How a serious bank will support the financing on no acceptable performance ?

Noble Group (來寶集團) is now two things; coal and oil liquids.

Credit lines have been granted on the performance of the oil liquids, the so-called “ebit indestructibility” of the Noble oil liquids segment but for Q1-17 the operating income from Supply Chains of $27M doesn’t even cover the interest rate load on this segment.

As alluded earlier, Noble Group is again in the sights of the credit agencies.

S&P questions the financial guearing of Noble. 

Noble’s only escape is to use a 2nd credit card to cover its $220M annualized interest bills and refinance its “fair-to-arrive” net equity. 

We are heading towards a restructuring event.

Noble Group 4th position on the top 10 commodity borrowers

Congratulations to Noble Group who now makes the top 4th position on the top 10 commodity borrowers list

Figure_1

With $5B, Noble Group makes the top 4th position on the top 10 commodity borrowers list. Cautionary tale:  We need to know with some precision what Noble are actually using the money for.

Noble is known remarkbly active in the financing market but less in the commodity market.

The struggled acquisition of Noble Agri by Cofco has shown how difficult it is to impose success to a company’s assets with a substantial booked value despite no acceptable performance and very few financial substance (if not any of it).

 

The Noble Files 贵族档案

More people doubt the revenues of Noble Group.

Noble Group inventory in-transit

Noble Group growth seems very artificial,  volume is at any cost in order to compel name recognition.

A great deal of criticism should be levelled at Noble Group for their lack of financial substance.

How can any trader in the world have an Inventory-in-transit of $2.6M for a  cost of goods sold of $48.524B ?

sales peers noble

If we believed Noble, by its revenues, the Singapore-listed trader would be a trading giant second to Mercuria, (company with traceable flows and assets).

However the revenue per employee of Noble’s peers, only brings more questions about the veracity of Noble Group reported revenues and volume.

noble employee per sales

The revenues/employee of Mercuria and Gunvor put Noble Group in the   88.4B$  revenues fork.

At $101M per employee and the sales of Mercuria, Noble would have estimated $8B revenues.

At $4.9M per employee and the sales of Gunvor, Noble would be a $8.4B revenues company.

The audited inventory-in-transit, the level of RMI, and the peers analysis both place Noble as a company with implied revenues 11X to 12X less than the amount reported.

It is not clear how Noble can claim a turnover of nearly $100B per year with an unaudited physical traded volume of 182 million metric tons (2016) and 183 million metric tons (2015).

Noble is known very active in the financing market.

Yet no evidences have suggested that the physical operation of Noble  possesses any of the hallmarks normally associated to one of the largest commodity trader (chartering of ships and by tonnage)…

Noble Group has generated negative cash-flows from the operations to the tune of

-$900M in 2016,

-$600M in 2015

and

-$1600M in 2014.

Worse, the core of its booked net equity which is 102% of fair value gains/losses booked on assets.

How a company with no acceptable performance can still present a net positive equity of $3.92B ?

With $5B, Noble makes the top 4th position on the top 10 commodity borrowers list.

Figure_1.jpg

TXF data

Cautionary tale:   We need to know with some precision what Noble are actually using the money- for ato-arrive net-equity” that the trader has  to continuously re-finance.

The struggled acquisition of Noble Agri by Cofco has shown how difficult it is to impose success to a company’s assets with a substantial booked value despite no acceptable performance and very few financial substance (if not any of it).

Noble is known as remarkably active in the financing market but less in the commodity market.

These anomalies only reinforce our belief that Noble is not even close to one-fifth of the $97 billion sales company it touts to be.

The Noble Files 贵族档案

Sinochem and Noble Group Americas Take-or-Pays.

Noble had two or three large and lucrative take-of-pay deals in the U.S but the wind has changed as it always does in the physical energy markets.

How the “core assets” (contracts) are now performing ?

Oil liquids had an EBIT of $646M in 2015, thanks specifically to three deals on Colonial, Magellan and Explorer pipelines. noblegroupreasearch.wordpress.com 2016/06/06

Noble has confirmed that it is losing money since  at least 8mth on the pipelines as we predicated earlier. noblegroupresearch.wordpress.com2016/11/21 

energy-noble-group-2

Noble Group Financial Performance Presentation FY16

Note the

“However, profitability was significantly impacts by working capital constraints as we managed for liquidity, inhibiting the business’ ability to enhance margins by monetizing the embedded optionality in the franchise”

The U.S oil liquids business has operated at a loss $23M during Q4-2016.

Now caught in-between, with losing positions the trader frames it as “it’s because of liquidity constraints” as it tries to sell this U.S oil liquids unit to Sinopec.

This is the also company who has burned $900 millions in OPERATING CASH-FLOWS in 2016 but printed an accounting profit… only figure.

The Noble Files 贵族档案

Noble, from Speed boats to Hypersonic Missiles.

The Transit Time on Colonial Pipeline, if you go from one end to the other (Houston to New York) is about 16 days.

Most of ship voyages in Asia are less than 10 days but apparently this is too much for Noble Group.

seanergy-maritime-capesize
Are Conventional Ships now too slow for Noble Group Ltd  ?

At an average of 10 days shipment and at with a cost of the goods sold(COGS) of $48.58B FY16, the average inventory in transit recorded by Noble would have to be at least $1.256B , problem is that the audited number is only $2.6M FY16.

FY2015 the average transit time of Noble was 3.5 days.

FY2016 The average transit time of Noble, is now 0,019 days. It either implies that Noble has used hyper sonic missiles or that the corporation has a COGS inflated by 10 to 15 times in 2016.

If Noble, has always self-proclaimed itself as a corporation of +1000 employees working on busy trade floors, even more doubt their revenues.

Yet, none of the evidences suggest that this operation possesses the normal footprint associated to one of the largest commodity trader.

They have gone from cargoes put in the speed boats with the Elmans… to the Mach 5  speed with captain William Randall.

Noble Group inventory in-transit.png Audited Financial Statements 31 December 2016

The Noble Files 贵族档案

How the “core assets” (contracts) are now performing ?

products

“One trader in the states keeps making huge money every year on pipeline deals, without him the story of oil liquids as a whole would be completely different.”*

 

  • Oil liquids had an EBIT of $646M in 2015, thanks specifically to three deals on Colonial, Magellan and Explorer pipelines.
  • In the past because they had just to sit  and were making money.
  • Now the majority of these deals are the red, some are losing -1c/gal/cycle, the trader has to keep losing money only to conserve its priority on the lines and fill its contracts until an arbitrage arise.
  • It is publicly known that the value of the lines have dipped into negative values for the shippers like Noble (implying no price arbitrage) –
    e.g

    the Positive MTM Fair Value MTM that the trader has on these commodity contracts has also to be marked down.

  • The trader has no refineries and unlike BP and Shell cannot afford to lose money each day in transportation to regain everything in cracking margins and volume % market share.
  • It is well-known that Noble is Asia’s largest commodity trader but its role in America has remained largely ignored in the public.
  • FYI Noble Oil liquids is shipping in excess of 1 million barrels per day, it is the largest gasoline blender in North America.

 

Knowing that:

  • Noble Oil Liquids operates in the [1 – 1.8] % sub-margin band and accounts for more than 70% of the operating income of the supply chains at Noble.
  • Several traders have cut their bilateral opened-credit lines with the “big swinging dick”.

 

How the “core assets” (contracts) are now performing ? 

GHOST SHIPS

By all accounts, the physical oil or coal volume traded by Noble Group Ltd. would place them in the world’s largest charterers of ocean-going vessels.

energy-noble-group

Figure 2- Segments Results

Can the commodity trader seriously trade over 3 Million barrel equivalent per day ?

“Don’t kid yourself, with Noble you can easily cut the apple in 4 or 5 “.

 Legendary oil trader

energy fixtures noble group

Figure 3- Top Reported Dirty Spot Charterers for 2015

150 Millions metric tonnes of Oil liquids is a volume greater THAN the SUM of:

ST SHIPPINGShipping arm of Glencore.

CLEARLAKE, Shipping arm of Gunvor.

TRAFIGURA…

CSSA, Shipping arm of Total S.A

and the Shipping arm of BP all combined…