A revolt by Noble Group Ltd.’s shareholders has emerged as a major threat to the embattled trading house’s $3.5 billion restructuring deal agreed with a group of hedge fund creditors, with one of its most vocal investors hitting out at the plan.
If shareholders vote against the deal, the company will seek to implement the restructuring as a prepackaged administration in the U.K., an action that would effectively concede the company’s insolvent, Noble said on Wednesday as it announced an agreement on the terms of the restructuring with 46 percent of its senior creditors.
Noble’s fifth-largest shareholder Goldilocks Investment Co. attacked the plan on Thursday, saying it’s “astounded” that the company has ignored calls to make the deal more equitable for minority investors, and criticized the trader for trying to “bulldoze its way through” by attempting to shift its main interests to the U.K.
An external media representative for Noble in London didn’t immediately respond to a request for comment.
Noble is teetering on the brink of collapse following a crisis that started three years ago when then-unknown Iceberg Research began publishing critiques of the company’s accounting. Since then, the company’s been battered by losses and its stock driven to near two-decade lows while asset sales have reduced it to a shadow of its former self.
Any insolvency process driven by the courts would be “very damaging indeed” for the company’s trading business, which relies on the ongoing confidence of suppliers and buyers from Indonesian coal miners to Chinese steel mills, Chairman Paul Brough told investors last month.
If Noble’s counter-parties, including coal miners and steelmakers, are able to claim it equates to a so-called credit event under their contracts, they may be able to walk away from their long-term deals with Noble.
That gives shareholders, whose claims on the company are the most junior in its capital structure, unusual power. What’s more, several of the largest shareholders held talks with the company’s advisers last week and expressed their concerns with the deal, an outline of whose terms were published in January, according to people familiar with the matter.
The largest shareholder is Richard Elman, the company’s founder, who still sits on its board. The next biggest are Orbis Allan Gray, Prudential Plc, China Investment Corp., and Goldilocks, and the four collectively hold 38.4 percent of the company, according to Bloomberg data. The deal will require the approval of at least 50 percent of shareholders voting at a meeting planned for late April or early May.
In a tacit recognition of the shareholders’ importance to the restructuring, Noble has marginally sweetened the deal for them from an original plan in January.
First, the company increased the amount of equity in the restructured company that could go to shareholders, at the expense of the share for management. As before, existing shareholders and management would initially get 10 percent each of the restructured company’s equity. But, in a change from the preliminary deal announced in January, management would have to offer to split a further 15 percent that it can gain through purchases and an incentive scheme with the company’s shareholders.
Second, shareholders who approve the deal will get a stake in the restructured company, even if the shareholder meeting as a whole votes against the deal, according to the terms of the agreement published on Wednesday — an extremely unusual clause in for a restructuring deal.
“Management will ultimately continue to be handsomely rewarded” and the revised deal is “nothing more than window-dressing,” Goldilocks said. “We caution that Goldilocks does not take kindly to Noble’s arrogance. This matter will escalate and we reserve all our rights,” it said.