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

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)…

Someone’s Gotta Pay the Price Ex-Noble Group’s CEO Alireza Sues Founder Elman for $58 Million

Ex-Noble Group’s CEO Alireza Sues Founder Elman for $58 Million

“The former chief executive officer of Noble Group Ltd. has filed a lawsuit against founder Richard Elman claiming that he’s owed stock in the embattled commodity trader”.

“Elman gave Alireza six months’ notice of termination, citing irreconcilable differences between the two on how the company should be run in future, the writ says”.

“According to the writ, Alireza had a deal to receive about 63.9 million fully-paid shares in Noble Group for starting work at the company, and an additional 52.3 million shares when his employment was terminated. He claims those shares haven’t been transferred”.

-Bloomberg

For the 1st time we learn that the departure of  the CEO of Asia’s Largest Commodity Trader wasn’t an unexpected resignation but a termination.

We doubt Alireza is “in-the-money”, his performance was rather mediocre but in the absence of a decent board and with Noble (來寶集團) pushing back against the exchange guidelines  for disclosing information on its executives’ remuneration in Singapore anything is possible.

Also adding to the oddness, the defendant isn’t Noble Group LTD but a shelf-company  –Fleet Overseas (New Zealand) Ltd, an intermediary that banks dealing with the Noble camp have just been revealed the existence of.

At the present it remains impossible to determine the exact nature of Fleet Overseas (New Zealand) Ltd and its relationship with Noble Group (來寶集團) nor we can’t know the exact stock compensation scheme to remunerate its executives.

Noble (來寶集團) has some bonus/compensation/stock options liabilities not limited to its MDs.

Traders have also to protect their biscuit.

There are many rumors circulating in the market about a Noble Group (來寶集團) trader  got a special arrangement with Noble after he threatened to go with another company in Houston.

We muse that Fleet Overseas might had effectively acted as a SPV (special purpose vehicle) to offshore potential future liabilities “off-the-balance sheet”. 

Giving the future viability Noble Group (來寶集團), these liabilities will likely expire worthless. 

More importantly, 4 Banks are long on this thing left with a $1.5B exposure, a Winner with no financial substance or unencumbered assets, zero management oversight, a porous risk management and no physical trading traceability.

 

-the Noble Files 高贵组文件 研究