Noble Group – more meaningful shareholder communication required

Date: January 26, 2018

A Thursday news report by Debtwire which said that Noble Group has struck a deal to restructure its debt thus opening the door to the entry of a strategic investor would, on the face of it, have been welcomed by the firm’s shareholders and bondholders who have had to endure almost three years of negative news, no reported profits and frequent downgrades by brokers and ratings agencies that have led to persistent share price weakness. Coming as it did just a few days after speculation that China conglomerate Cedar Holdings is in talks to acquire a controlling stake in Noble, the Debtwire report appeared to offer hope that maybe the worst could be over for Noble.

The operative word however, is “maybe’’. The reason for saying this is that there has been no confirmation from Noble on any of the above, which means that there is a chance that those hopes of a turnaround could well eventually be dashed. In fact, the company on Thursday evening responded to the news by saying it has not concluded any debt restructuring agreement, nor has any deal been struck regarding the entry of a strategic investor or sale of a controlling stake.

In other words, although the company is in talks with various parties and these are constructive, the possibility still exists that they may lead to nothing. Herein lies the main bone of contention stakeholders have with Noble’s disclosures – though fairly regular and in line with prescribed forms, they have been vague and lacking substance. The outcome has been frequent speculation, leading to unwelcome, heightened share price volatility and continuing uncertainty.

It is therefore high time that the company embark on announcements that emphasize substance over form. A good starting point would be to answer the three questions posed by the Securities Investors Association of Singapore (SIAS) in the latter’s Thursday press statement, the first and most pressing being whether Noble can meet its US$40m coupon payment due on 29 Jan and whether Debtwire is accurate in its reporting that the company has managed to restructure its debt, starting with the US$400m bond due on 20 March. Shareholders in particular should be given an assurance that the eventual arrangements – if any – will be fair and equitable since there is speculation of a debt-to-equity swap.

The second relates to being transparent with regard to asset sales that have been undertaken to pare down debt. Is the company securing the best prices for these assets, given that the sales are below book values? What is the basis of valuation used in these sales?

Third, more clarity on the Cedar negotiations are needed. Both parties have neither confirmed nor denied the news story but Noble should appreciate that this leaves the market open to uncertainty that results in wild price swings, such as the sharp uptick earlier this week when the Cedar story was first circulated.

This surge prompted a query from the Singapore Exchange, to which Noble responded with a noncommittal, boilerplate reply that conveyed no useful information whatsoever. Granted, negotiations of such nature tend to be tricky and usually lengthy, but by the same token, Noble’s stakeholders have for too long not been given sufficient assurances on the status of their investments nor do they know with any degree of confidence if the company can even continue as a going concern.

In this connection, note that Moody’s Investors Service last month retained its negative rating on Noble when it assessed the latter’s latest earnings figures, adding that it is highly uncertain whether asset sales will raise sufficient proceeds to meet debt maturities and cash outflow over the next 12 months.

“In addition, the proposed disposals would substantially reduce Noble’s scale and global reach, challenging its ability to generate profit and cash flow to service the remaining debt’’ said Moody’s.

It is worrying that after almost 36 months since Noble’s accounting practices came under scrutiny and its shares started sliding, stakeholders are still very much in the dark. They deserve to know more and the faster the company improves the quality and frequency of its communications, the better.