Tag Archives: bankruptcy

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.

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

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  • 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 EFA and INOKS 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

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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.

 


 

 

 

The burden of Karma is heavy as Noble crosses the gates of death.

Noble Group has the symptoms of schizophrenia. Their delusion and demise were never “their” fault or caused by the actions of “their” traders.

Caught in-between and dancing on losses, the high rollers have painted it as because of : “liquidity constraint impacting trading and earnings generation”. For Noble Group “the problem” must be the exact solution, they have punted for working capital everywhere from the MD&A to the Press/Investor Communication and Strategic Review…

The financial statements* for the six months ending on 30 June 2017 eloquently sums up the financial substance of Noble Group:

  • Noble presents itself as a  $2B net equity company with an $1,45 MtM unaudited Gains on Derivatives company*
  • The trader has -$763 million negative OCF with a net debt increased by nearly $1B to $3.81B.

* unaudited.

The Energy Segment accounts for 90% of Noble Revenues in 1H-2017.

Noble Group Business

Noble Group Limited Revenues by Segment, 1H-2017

The Energy Segment traded at a loss of $226 million during 1H-2017 (excluding financing costs and salaries).

That’s more than -$1.25 million per business day… Monday to Friday but the business is run smoothly. Of course no.

But in the world of Noble shortlisters rush on a “bargain” 🙂

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“Sale of Global Oil Liquids Sales process commenced with shortlist of bidders–bids expected in Q3 2017”

-Strategic Review Update–26 July 2017

Noble nasty.png

 

Investor Presentation Q2-2017 P.6

Out of Control

The Non-Performance of Global Oil Liquids should not be that shocking knowing the “Book now, think later” at the company. It lacks the management to impart performance.

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

The burden of Karma is heavy as Noble crosses the gates of death:

The hostile work environment includes daily vulgar and disgusting comments from male employees about vaginas, sex, male genitalia, and verbally abusive language using the word ‘f—‘ explicitly. constant abuse.”*

During 2012-2016, at the office in Stamford, Plaintiff’s seat was next to the gasoline traders which includes video conference cameras connecting with London and Houston offices.

The commentary back and forth on the Stamford desk for everybody within earshot to hear, frequently became vulgar and disgusting. This created a hostile work environment.

*Ramos V Noble Americas Corporation.

It is the last tango act of an unprincipled trader-assaillant.

Noble did the financial engineering for years and years and then the showgame broke. The typical assumption of a 40% recovery rate may indeed be too optimistic.

PwC has signed Noble’s Financial Statements but performance has inevitably caught up the accounting gimmicks.

Noble Group 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

and -433M for Q2-2017

A Toxic Legacy

Net fair value gains now stands at $1.455 billion as of end-Jun 17. 

fairtoarrive net equity of $2B* is still rather delusional for a company not producing any plus-value -Noble is losing operating cashflows at a rate between -3.5 and -$6.5M per business day in the recent quarters.

*unaudited financial statements.

Noble’s position is irreparably compromised. 

Noble group has no intrinsic value (by Discounted Cash-Flows).

The firm offers no viable future for patient capital.

Their leverage futures-physical trading model has too much impediments to break-even.


The Noble Files 贵族档案

 

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.

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

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 ?