Noble Group's $5 billion estimated loss could push creditors to accept debt deal

By Anshuman Daga

SINGAPORE (Reuters) - A massive annual loss estimate by commodities trader Noble Group makes it more likely that creditors will back its $3.4 billion debt-for-equity restructuring to ensure the company's survival, analysts said.

Noble, which flagged an annual loss of up to $5 billion on Monday, announced an initial deal with creditors last month to halve its senior debt and give them 70 percent of the company, with existing equity holders diluted to 10 percent.

"The losses were expected to clean the old Noble balance sheet once and for all. In doing so, the management makes endorsing the restructuring the only viable alternative for creditors," said Jean-Francois Lambert, a consultant and former global head of commodity trade finance at HSBC.

Over the last three years, Noble - once a global commodity trader with ambitions to rival the likes of Glencore and Vitol - has cut hundreds of jobs, sold billions of dollars of assets, taken hefty writedowns and changed its CEOs and chairman.

In a statement, Singapore-listed Noble highlighted challenging operating conditions and flagged a total net loss of $1.72 billion to $1.92 billion for the quarter to December 2017, stemming largely from non-cash losses from its mark-to-market derivatives portfolio.

"I expect something close to the current deal to go through based on a much worse outcome for everybody if they have to liquidate and start over," said Andrew DeVries, an analyst at research firm CreditSights.

Noble flagged a record annual loss for 2017 of $4.78 billion to $4.98 billion, which follows a profit of $9 million in 2016 and a loss of $1.7 billion in 2015.

It said a group of senior creditors, known as the Ad Hoc Group, with whom it had struck an agreement in principle to restructure debt, held about 36 percent of the company's senior bonds and loans.

It said the group's advisers were in contact with creditors who held about an additional 15 percent of Noble's senior debt instruments and had indicated their broad support for the restructuring.

"Shareholders and perpetual bond holders will bite the bullet in any case," said Lambert.

Founded in 1986 by Richard Elman, who rode a commodities bull run to build one of the world's biggest traders, Noble was plunged into crisis in February 2015 when Iceberg Research questioned its accounts. Noble has defended its accounts.

Noble's market value has fallen to just S$259 million ($197 million) from $6 billion in February 2015. Noble reports annual results on Feb. 28.

"Following a challenging 2017, we are looking forward to the final phase of our restructuring, and the creation of a new Noble..." said Paul Brough, a restructuring specialist who took over as Noble's chairman last year.

Noble warned that the expected quarterly net loss would result in a negative net asset position for the group, but said the board "believes that the proposed restructuring, once implemented, should restore shareholders' equity and create a sustainable capital structure."

($1 = 1.3113 Singapore dollars)

(Additional reporting by Ambar Warrick in BENGALURU; Editing by Richard Pullin)