How Noble Group's Possible Debt Restructuring Could Play Out

(Bloomberg) -- What a debt restructuring at Noble Group Ltd. might look like has become an even more pressing question after the beleaguered commodity trader started talks with stakeholders on potential options to address its capital structure.

The company said discussions are at a preliminary stage and in line with its objectives to “manage the maturity of its borrowings,” moving it a step closer toward restructuring its borrowings.

Read more on the talks

The coming weeks are likely to be critical for the company, which posted another $1 billion-plus loss in the third quarter. It also saw the departure this week of key executive Jeffrey Frase, previously co-chief executive officer, leaving Will Randall as sole CEO. BNP Paribas SA, JPMorgan Chase & Co. and Deutsche Bank AG are among banks that have said the company will probably be forced to restructure its remaining debt. 

Here are three potential scenarios for how that could play out:

Writing Down or Extending Debt

Noble Group is grappling with $3.8 billion in unsecured debt, including a $1.1 billion revolving credit facility due in May. The firm had $262 million of usable cash as of Sept. 30. At the same time, Noble Group’s business is dwindling.  

A restructuring of its debt is likely to include some kind of write down, according to Nomura International (Hong Kong) Ltd.

“I think Noble’s restructuring for unsecured lenders and bondholders will most likely be through a combination of some principal haircut, a maturity extension and the company giving equity to bondholders,” said Annisa Lee, head of Asia ex-Japan flow credit analysis at Nomura.

Debt-to-Equity Swap

Any restructuring involving such a debt-to-equity swap would help the company pare debt, and would have recent precedent as several firms in Singapore, where Noble Group is listed, have proposed similar moves.

But it would also face challenges. Existing stock holders could either get wiped out or diluted.

Noble Group’s stock has slumped 88 percent this year, leaving it with a market capitalization of $193 million on Wednesday.

“The current low market cap makes equity raising or conversion of debt to equity difficult,” said Neel Gopalakrishnan, senior credit strategist at DBS Group Holdings Ltd.

Liquidation

An outright liquidation of Noble Group is also one possibility, though Chairman Paul Brough, a restructuring specialist who worked on Lehman Brothers, has indicated he wants to avoid that outcome.

“I don’t go into companies with the intention of liquidating them; I am a restructuring man,” Brough said at a shareholders’ meeting in Singapore in September. “I have only once ever been in a Chapter 11 situation with Lehman Brothers, and I don’t wish to go there again.”

However, if Noble Group fails to reach an agreement with stakeholders, then the company could potentially be pushed into a liquidation scenario.

“We think that a liquidation is the worst case scenario but if the company is not able to reach an agreement with stakeholders and runs out of working capital it could be pushed into it,” said Gopalakrishnan at DBS.

To contact the reporter on this story: Denise Wee in Hong Kong at dwee10@bloomberg.net.

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Jake Lloyd-Smith

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