Noble may move towards debt-for-equity restructuring

LONDON: Noble Group Ltd is talking to creditors about a conventional restructuring that includes a debt-for-equity swap, according to people familiar with the negotiations, a move that represents a change of tack as the commodities trader fights for survival.

The shares extended their surge. After meetings in Hong Kong last week, the company is expecting a proposal from its creditors to restructure US$3.5bil in debt, including a major debt-for-equity element, the people said, asking not to be identified discussing private talks.

Depending on its size, the swap could wipe out a significant portion of the shareholdings of cur- rent investors.

Although a deal is some way off, this is a departure from Noble’s original proposal, which involved exchanging current debt, including bonds and a revolving credit facility, for new maturities without a haircut on the face value and initially preserving all the equity of the current owners.

In that plan, the new debt would have come in three types: bonds supported by cashflows from Noble Group’s Asian coal and iron ore business, an asset-backed bond secured against other physical assets, and a mandatory convertible bond.

Under the new proposal, the company will retain some key elements of its opening gambit, including debt supported by cashflows from its Asian business plus the assetbacked bond.

But the balance would be through a classic debt-for-equity deal, the traditional way for companies to reshuffle borrowings.

The company’s shares jumped as much as 26% yesterday to 24 Singapore cents before trading at 20.5 cents by 1pm local time. They have gained more than 60% this week, the biggest three-day increase since June, after closing at the lowest level in almost 20 years last Friday.

A spokeswoman declined to comment.

The negotiations are continuing, for Noble and the people said that new developments in the restructuring process could occur before a deal is reached.

Noble Group and its creditors have yet to agree on how much the current shareholders would retain in the new company, and how much would be controlled by management as part of an incentive package.

The company has a market value of about US$200mil, compared with total net debt of US$3.5bil, suggesting a significant risk to current shareholders under a debt-for-equity scenario.

The discussions are expected to carry over into early January, one of the people familiar with the conversations said, describing a debt-for-equity swap as a positive step.

If the plan works, it could save Noble Group, albeit at the expense of its current shareholders and resulting in a much smaller company.

Another person familiar with the talks cautioned that creditors and the company weren’t close to a deal.

Richard Elman, the veteran commodities trader who founded Noble, is the largest shareholder, controlling almost 20% of the stock. China Investment Corp, the sovereign-wealth fund, is also a major shareholder at just under 10%, according to data compiled by Bloomberg.