Noble Group Sues Coal Supplier Yancoal for Alleged Breaches

(Bloomberg) -- Noble Group Ltd., the commodity trader seeking to push through a restructuring after losing billions of dollars and defaulting, has filed a claim in Australia against two coal producers for alleged breaches of contractual obligations under a marketing-services agreement.

The Singapore-listed company, which will report another loss later this month, said a unit has filed the claim in the Supreme Court of New South Wales against Yancoal Australia Ltd. and its subsidiary Gloucester Coal Ltd. for damages estimated at at least $127 million, according to an exchange statement Friday.

After being locked in a battle for survival for years, Noble Group has secured approval from most of its senior creditors for the restructuring, as well as from about a third of its existing shareholders. The company’s drawn-out crisis has prompted speculation that some of its suppliers may seek an opportunity to walk away from contracts, putting at risk Noble’s ability to provide raw materials to customers in Asia. The claim relates to a marketing-services agreement entered into in 2011.

“We’re taking the appropriate time to review the claim and it’s too early for us to provide any further comment at this time,” James Rickards, Yancoal’s general manager investor relations and corporate affairs, said by phone.

Marketing Agreement

Noble has a long-term marketing agreement with Yancoal that dates back to the 2012 merger of Yancoal with Gloucester Coal, in which Noble had a controlling stake. In 2017, Yancoal sold Noble A$195 million of coal, according to the miner’s annual report.

The legal dispute relates to a royalty linked to the use of port capacity at Newcastle, according to a person familiar with the matter, who asked not to be identified as the information is private. Still, after a deal last year that heavily diluted Noble’s stake in Yancoal, the trader’s creditors aren’t counting on Yancoal continuing to be a major supplier, according to another person.

Noble Group remains a minor shareholder in Yancoal, Bloomberg data show. The valuation of that initial holding, as well as its treatment of long-term contracts, had drawn particular scrutiny from its most consistent foe, Iceberg Research, one of several companies to criticize the trader’s accounting. Noble Group consistently rejected the criticism.

Last week, Noble Group said it expects an overall net loss of $115 million to $140 million, driven mostly by restructuring expenses and finance costs for the quarter to June. Still, the trader also sees profit before interest, tax and restructuring costs of $35 million to $50 million in the period as operating income from supply chains covered expenses.

©2018 Bloomberg L.P.