It attacked the restructuring proposal’s legal release clause and said it has “zero chance” of success.
In a new statement, Iceberg Research has urged all of Noble’s senior creditors to reject the restructuring proposal and the legal release clause in the restructuring support agreement. The group said the plan has zero chance of success and “everybody at Noble already knows it.”
It wrote, “We urge stakeholders to reject this proposal and particularly to reject any legal release clause that would absolve this management, and prevent stakeholders from suing the parties that have facilitated this scandal. This would be financial suicide.”
Iceberg noted that Noble promises a pro forma EBITDA of $175m to $200m per year. “However, in 2017, adjusted net loss before interest and tax from continuing operations was (-436m), not even close. As usual, projection numbers given by Noble are completely unreliable. This is the team that overvalued fair values by billions. Noble has repeatedly claimed that its coal business is a solid cash generator… If the coal business was so profitable, how to explain that the group is in default now,” it added.
Noble’s ability to generate cash has consistently been extremely poor, Iceberg said. In 2017, “the continuing operations that are supposed to become the ‘New Noble’ bled $300m cash,” it added.
Moreover, the group thinks the restructuring won’t help push down financing costs. It said that post-restructuring, debt will be US$1.655b and bond coupons are “sky high” at 10%, resulting in $165m of interest expenses per year. Noble will also have to pay for their new $700m trade/hedging facility. Additionally, financing costs after restructuring will still be close to what they were before the restructuring.
It wrote, “In commodity trading, you cannot afford bonds with a coupon of 10%. This is a very low margin industry and the assumption that Noble with its cash flow generation will be able to pay this kind of interest is nonsense.”
Iceberg said Noble’s managers now prioritise to move around lawsuits because the restructuring is centred on a clause for legal release. “Noble’s managers know that ultimately the ship will sink but they don’t want to spend the next few years with lawsuits,” it added. It also said that Noble’s board of directors have defended the restructuring because “they need the release.”
It has come to this, because Iceberg said, Noble’s board has never been representative. “None of Noble’s institutional investors is represented. The last CIC director has just resigned (for ‘personal reasons’). Goldilocks, a shareholder who controls 8% of Noble, wanted two seats but they were turned down for ‘governance reason’. We believe most of these directors have been chosen due to their personal connection with Noble’s management,” it wrote.
“Everybody seems to fight for a piece of the cake but they don’t realise that there is no cake anymore. The price of the shares will ultimately plunge to zero once shareholders see there is no money left because financing costs are too high. We strongly believe that what really matters to Noble’s managers is not the economic value of these shares but the voting rights that go with them. This is the reason why the 10% option carries voting rights throughout the option period,” it added.
Finally, Iceberg called on Noble to appoint an interim chairman/CEO with a commodity background, determine whether Noble could be liquidated or not, and, if it is viable, be run by “experienced and respected” commodity traders. It said banks will only accept to finance the company if a new management is appointed.
“Noble’s stakeholders should take matters in their own owns hands,” it said and added that it welcomes the decision made by Goldilocks to sue Noble. Iceberg urged shareholders to sue Noble’s managers, past and present directors, EY, the banks “that have allowed Noble to hide its debt with repos” and arranged its 2022 bond in 2017 and $500m equity raising.
It concluded, “Over the past three years, Noble’s stakeholders have been betrayed in every way possible, by management, by the auditor, by the ‘regulators’, by the organisations around Noble that have facilitated this scam. It is time for them to fight back. Noble is so weak now that it will take minimum time and effort to win. Let the lawsuits begin.”
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