Tag Archives: balance sheet

NOBLE Paper for Paper Plan 2

Those who take risks must be exposed to the losses that come from them. The restructure of Noble is an infringement of this principle.

 

  • If the company (that they bankrupted) ‘goes into liquidation’, the management pocketed fees, going away with millions in salaries & bonuses.
  • If the company does not go in liquidation, the failed management and its failed VPs also end up winning a ~15% stake in the reformed entity, are absolved from criminal prosecutions perpetuating the siphoning with the next-to-become-losers…
  • Noble’s 6% Perpetual securities with a principal amount of $400m will be reduced to $25M (a 93,75% haircut) .

The new notes allow Noble to trigger its Perennial Default.

  • “Concurrent with the restructuring, the Existing Perpetual Capital Securities holders will be offered the opportunity to voluntarily exchange the Existing Perpetual Capital Securities into a new US$25 million 2.5% non-accumulative pay-if-you-can perpetual capital security instrument issued by New Noble (“New Perpetual Capital Securities”)

(“New Perpetual Capital Securities”) Non-accumulative ? PIK, pay-if-you-can ?

Current shareholders will get a 10% of the ‘New Noble’ (90% dilution)

http://infopub.sgx.com/FileOpen/New%20No…eID=492729

 

More importantly what is the standard of probity of Noble and its Financial Advisors PTJ Partners, Comprador, Moelis ?

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

As we theorized, Noble’s operating loss was created by the 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 could be viewed as an expensive liability that Noble (來寶集團) had to carry.

The backbone of Noble Group’s net equity represented future gains (P/L) on commodity contracts, comprising more than 102% of Noble Group’s equity, e.g what Noble Group was margining to get trade loans.

Did Noble even validated how they marked their curves, like against the brokers curves Ginga, Tradition, Sunguard ? Else how did they justified their MtM P/L ?

Noble said yes, but thecnically, no independant third-party has been able to verify the gains on the contracts.

In fact even PwC gave an assurance review, but hasn’t worked directly with the contract, Noble arguing the terms were “highly confidential” and disclosing would hurt its competitvity.

It’s on what Noble borrowed from the Banks HSBC, ING and Deutsche Bank.

Not only this FV on G/L was improperly valued, Noble had also to fund the “ to-arrive equity”.

Predictably it’s what they did.

First they did a ‘discounted’ $500m rights issue, which was said ‘necessary’ to deal with what Noble called a “liquidity crunch” after then creditors and banks reduced their lines.

Then came a $750m 8.750% bond issue sold to the public in March of this year to support the “Fair-value-to-arrive equity”.

Most of Noble (if not all) tangible assets and offtakes have also been sold below the reported BV … and Noble Group, despite all its backstops, has been forced to realize a loss of nearly $4.99B for 2017.

Now finally they had to restructure ?

They are switching entities, leaving current bagholders with claims on an empty shell.

Noble group floats that post restructuring “New Noble” could be listed on the SGX, a wrong, highly uncertain and legally-challenged assertion.

Noble believes the proposed financial restructuring also sets a firm foundation in creating options for future strategic alliances.

What kind of clients or investors will want to seal business deals or only be associated with these characters in the future ?

The Noble Files 贵族档案

Advertisements

Noble’s “Reverse Working-Capital”…

All traders share an aspiration to borrow OPM and most of them, one day, will trade with money they aren’t eligible. Noble fell very young in the powder pot.

At one point in the time, Noble Group certainly received liquidity that they didn’t qualify for–Now the same banks are scrambling to unwind Noble’s balance sheet.

From FT

“Noble said the lower than expected sale price for its gas and power assets reflected the conversion of working capital into cash and a revaluation of trading positions due to “market volatility”.

“Mercuria had paid $102m for the business and deposited a further $83m in an escrow account”. 

“That figure is much less than the $261m Noble estimated it would be paid for the business last month when it asked shareholders to approve the sale”.

  • The conversion of working capital to cash assets is the portion attributed to the Gas/power unit on Noble Group Q3’s consolidated Balance sheet, Statements of Cash-Flows and Income statement.

.

  •  $76,000,000 of Noble Gas & Power valuation was the working capital attributed to third parties or Banks (payables finance, inventory finance, receivables finance).

.

  • Mercuria has paid the agreed price on the BUs to the seller minus this reverse-supplied capital by third-parties e.g restating the sales and actual P&L of Noble Gas & Power.

 

Mercuria Noble Group value breakdown.png

 The unit was marked by Noble at $394M in 1H-2017.

  • The $185M paid by Mercuria for Noble Gas & Power also suggests that Noble self-estimated the BU at more than twice its net asset value.

“Under a deal agreed in the past couple of weeks, Mercuria has given Noble access to $400m of its unutilised credit lines in return for a fee and information about its trading positions in coal and iron ore, according to people with knowledge of the arrangement.”

To avoid confusion, Mercuria isn’t altruistically given access but is tentatively placing the deal externally for a 200-250bps fee, contingent to 80/20 banks money and two leveraged funds money-without any risk or fiduciary relationship to the related parties we muse.

These funds are not first-payee loss in the case of a total loss / get whacked.

(EFA and Inoks Capital) target 1000-1200bps net returns in Asia trade finance coveting borrowers who do not have a credit rating  / or that banks just don’t want as clients (the rotten fish).

Cost of capital is cheap, albeit distorted by low rates. 

Noble Group is the perfect designated candidate: has destroyed its credits and its WACC represents the best uncorrelated opportunity on a risk-adjusted basis.

(Except for two minor details).

  1. The counterparty in the transaction contemplated by the funds doesn’t trade for a profit.
  2. Doesn’t generate cash as the banks unwinding the counterparty’s balance sheet.

We think concerned investors would like to develop a discussion with their private wealth advisers.

Among other things funds disclose very little the break-down of their funds other than a monthly return or geographies. This is perhaps the only real “informational advantage” that the “trade finance funds” have.

The Noble Files 贵族档案