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I think Financial Times need subscription to read from the link I attached. I am unable to cut and paste over here due to copyright issue. Hence, just google " crash in noble perpetual bond"   and find the weblink from Financial Times to access the content on Noble Group' s current situation if one is interested to read the article.

jeremyow      ( Date: 20-May-2017 15:14) Posted: http://www.ft.com/content/df7e59ae-36d9-11e7-bce4-9023f8c0fd2e    Thanks MarcPh for the info on Noble Group' s bond crash. I attach here a recent article by Financial Times which discusses the worries surrounding Noble Group at this current moment. It can be summarised into poor business economics and performance plus concern over its weak liquidity both of which have uncertainties whether they can improve over this year. With the inconclusive talks with bankers and IE Singapore, it is worry adding on worry. At the rate this is going, even if Noble Group can tide through this downhill challenge, the equity and bond prices may take a very long time to recover back the current losses for those investors and shareholders who currently hold Noble shares bought at previous higher valuations before these series of woes surrounding the company begun. Maybe it had been better to cut loss earlier on Noble Group and move on to reallocate capital to other investments. With current uncertainties undergoing, one is unsure whether equity and bond prices will further collapse in future if things go further downhill. Even if things tide through, the recovery will be a very long road ahead to recover back the lost grounds in equity and bond prices resulting in huge time opportunity cost wasted on an underperforming investment. This is certainty a low or no reward high risk bet.     MarcPh      ( Date: 20-May-2017 13:11) Posted: Noble 2020 perp bonds crashed to end the week at 70% below par after inconclusive talks with bankers & IE Singapore.

 

http://www.ft.com/content/df7e59ae-36d9-11e7-bce4-9023f8c0fd2e   

Thanks MarcPh for the info on Noble Group' s bond crash. I attach here a recent article by Financial Times which discusses the worries surrounding Noble Group at this current moment. It can be summarised into poor business economics and performance plus concern over its weak liquidity both of which have uncertainties whether they can improve over this year. With the inconclusive talks with bankers and IE Singapore, it is worry adding on worry.

At the rate this is going, even if Noble Group can tide through this downhill challenge, the equity and bond prices may take a very long time to recover back the current losses for those investors and shareholders who currently hold Noble shares bought at previous higher valuations before these series of woes surrounding the company begun.

Maybe it had been better to cut loss earlier on Noble Group and move on to reallocate capital to other investments. With current uncertainties undergoing, one is unsure whether equity and bond prices will further collapse in future if things go further downhill. Even if things tide through, the recovery will be a very long road ahead to recover back the lost grounds in equity and bond prices resulting in huge time opportunity cost wasted on an underperforming investment. This is certainty a low or no reward high risk bet.    

MarcPh      ( Date: 20-May-2017 13:11) Posted: Noble 2020 perp bonds crashed to end the week at 70% below par after inconclusive talks with bankers & IE Singapore. MarcPh      ( Date: 20-May-2017 12:29) Posted: market whisper: Little progress in talks between bankers and Noble Group till this weekend after IE Singapore' s intervention

 

I very heng.....i bot olam perp bond, price also dropped to $80 when bloody water tried to attack them and fortunately Temasek came to rescue. Enjoyed few years of 7% dividend for few years and Olam will redeem back this year

MarcPh      ( Date: 20-May-2017 13:11) Posted: Noble 2020 perp bonds crashed to end the week at 70% below par after inconclusive talks with bankers & IE Singapore. MarcPh      ( Date: 20-May-2017 12:29) Posted: market whisper: Little progress in talks between bankers and Noble Group till this weekend after IE Singapore' s intervention

 

Do you know why IE is in the picture?

MarcPh      ( Date: 20-May-2017 13:11) Posted: Noble 2020 perp bonds crashed to end the week at 70% below par after inconclusive talks with bankers & IE Singapore. MarcPh      ( Date: 20-May-2017 12:29) Posted: market whisper: Little progress in talks between bankers and Noble Group till this weekend after IE Singapore' s intervention

 

Noble 2020 perp bonds crashed to end the week at 70% below par after inconclusive talks with bankers & IE Singapore.

MarcPh      ( Date: 20-May-2017 12:29) Posted: market whisper: Little progress in talks between bankers and Noble Group till this weekend after IE Singapore' s intervention. MarcPh      ( Date: 16-May-2017 11:32) Posted: Moody' s downgrades Noble Group' s ratings to Caa1 outlook negative https://www.moodys.com/research/Moodys-downgrades-Noble-Groups-ratings-to-Caa1-outlook-negative--PR_366630 Noble' s liquidity headroom &mdash including readily available cash and unutilized committed facilities &mdash was at $2.4 billion at end-1Q 2017 compared with $2.0 billion at end-2016, helped by the issuance of a $750 million, five-year senior unsecured bond in March. However, after paying down $650 million in bank debt and the maturity of a revolving credit facility in early May 2017, the headroom would have narrowed to $1.2 billion and become insufficient to cover the $2.1 billion in debt due for the rest of 2017 and 1H 2018. Moody' s expects that the company will not return to profitability this year and EBITDA will be at depressed levels. As a result, Noble' s adjusted net debt/EBITDA should be above 10x over the next 12 months when compared with the 7.6x registered in 2016. Likewise, its adjusted EBITDA/interest should decrease to below 1.0x from 1.6x in 2016.Noble' s senior unsecured ratings are not notched down for legal subordination, as secured debt totaling $721 million remained below 15% of total reported debt at end-March 2017. The negative outlook on the ratings reflects the company' s weak liquidity over the next 12 months and significant uncertainty around its ability to rebuild and reposition its operations to improve profitability and cash flow.

 

SGX query about the reckless coal hedges that we discussed.

http://infopub.sgx.com/FileOpen/Response%20to%20SGX%20Queries%20on%20Noble%201Q%202017%20Financial%20Results_18May2017.ashx?App=Announcement& FileID=454474

MarcPh      ( Date: 12-May-2017 10:55) Posted: High Risk Commodity Companies - Noble Group Noble' s latest US$750mio 8.75% bonds crashed 30% within a week after the company announced US$129.5mio quarterly losses. Another tranche of US$400mio bonds is due to mature within a year but the current market cap is less than US$800mio. There is another 6.75% $1250mio ($1.25bio) due in 2020. In comparison competitors such as COFCO enjoys ultra-low cost of financing.   Latest results: NOBLE Group fell into the red with a net loss of US$129.5 million for the first quarter despite a rise in revenue as operating income from supply chains plunged. Noble said that the operating environment was very challenging for the group in the first three months of this year." The dislocation in coal markets, and the very thin trading liquidity witnessed in the respective hedging instruments, was detrimental to the short term - 12 week - outturn," it said. http://www.businesstimes.com.sg/companies-markets/noble-incurs-q1-net-loss-of-us1295m-despite-rise-in-revenue   Please take such reports with a pinch of salt. While Noble claims that Coal business was tough, in the same period Indonesia' s Geo Energy Resources claimed that they are fetching good prices for their coal and profits escalated in the first quarter of 2017. (This is not a buy recommendation for Geo Energy Resources, just mocking the half-hearted Noble quarterly report... ...such a shame). Quote - " The Group&rsquo s revenue increased by US$ 87.4 million or 735% from US$ 11.9 million in 1Q2016 to US$ 99.3 million in 1Q2017. This was mainly driven by the increased volume of coal delivered from the Group&rsquo s SDJ mine, and higher coal prices." http://infopub.sgx.com/FileOpen/Geo%20Energy%20-%20Press%20Release.ashx?App=Announcement& FileID=453138

 

market whisper: Little progress in talks between bankers and Noble Group till this weekend after IE Singapore' s intervention.

MarcPh      ( Date: 16-May-2017 11:32) Posted: Moody' s downgrades Noble Group' s ratings to Caa1 outlook negative https://www.moodys.com/research/Moodys-downgrades-Noble-Groups-ratings-to-Caa1-outlook-negative--PR_366630 Noble' s liquidity headroom &mdash including readily available cash and unutilized committed facilities &mdash was at $2.4 billion at end-1Q 2017 compared with $2.0 billion at end-2016, helped by the issuance of a $750 million, five-year senior unsecured bond in March. However, after paying down $650 million in bank debt and the maturity of a revolving credit facility in early May 2017, the headroom would have narrowed to $1.2 billion and become insufficient to cover the $2.1 billion in debt due for the rest of 2017 and 1H 2018. Moody' s expects that the company will not return to profitability this year and EBITDA will be at depressed levels. As a result, Noble' s adjusted net debt/EBITDA should be above 10x over the next 12 months when compared with the 7.6x registered in 2016. Likewise, its adjusted EBITDA/interest should decrease to below 1.0x from 1.6x in 2016.Noble' s senior unsecured ratings are not notched down for legal subordination, as secured debt totaling $721 million remained below 15% of total reported debt at end-March 2017. The negative outlook on the ratings reflects the company' s weak liquidity over the next 12 months and significant uncertainty around its ability to rebuild and reposition its operations to improve profitability and cash flow.

 

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Moody' s downgrades Noble Group' s ratings to Caa1 outlook negative
https://www.moodys.com/research/Moodys-downgrades-Noble-Groups-ratings-to-Caa1-outlook-negative--PR_366630

Noble' s liquidity headroom &mdash including readily available cash and unutilized committed facilities &mdash was at $2.4 billion at end-1Q 2017 compared with $2.0 billion at end-2016, helped by the issuance of a $750 million, five-year senior unsecured bond in March. However, after paying down $650 million in bank debt and the maturity of a revolving credit facility in early May 2017, the headroom would have narrowed to $1.2 billion and become insufficient to cover the $2.1 billion in debt due for the rest of 2017 and 1H 2018.

Moody' s expects that the company will not return to profitability this year and EBITDA will be at depressed levels. As a result, Noble' s adjusted net debt/EBITDA should be above 10x over the next 12 months when compared with the 7.6x registered in 2016. Likewise, its adjusted EBITDA/interest should decrease to below 1.0x from 1.6x in 2016.Noble' s senior unsecured ratings are not notched down for legal subordination, as secured debt totaling $721 million remained below 15% of total reported debt at end-March 2017. The negative outlook on the ratings reflects the company' s weak liquidity over the next 12 months and significant uncertainty around its ability to rebuild and reposition its operations to improve profitability and cash flow.

 

 

Noble 2022 bonds hit new lows this morning, almost 50% below par. This bond was just issued two months ago.

Noble CDS

 

Based on the announcement, Genting' s redemption is about $2.3bio
At 5.125%, it translates to over $117.875mio of savings from coupon payment.

Genting should be left with another $2+bio of cash after the redemption

 

hi john_ric, genting is going to redeem the 5.125% bonds
http://infopub.sgx.com/FileOpen/GENS%20Announcement%20-%20PERPS.ashx?App=Announcement& FileID=453364

MarcPh      ( Date: 24-Apr-2017 10:45) Posted: Very likely. According to the last announced results, they have S$4.9bio cash n cash equivalent. Although the bond' s step-up coupon (self-imposed penalty) will come in at 2022, failure to redeem on first opportuntity is a disappointment to creditors and it will increase the cost of financing in future. Eg. Banyan Tree has a 6.250% bond that will fully mature next month. Banyan Tree shocked the investors when they failed to call it in 2015 (when SIBOR was very low) and continued to pay 6.25%pa. It wasn' t a huge amount just $50mio but it is a sign of distress and credit-negative decision. Following which, Banyan announced their heaviest loss in history (till 2015). Today, Banyan Tree bonds' are deemed riskier than Oxley. Banyan Tree' s 2020 bonds are trading at 8% below par while Oxley' s 2020 bonds are just 1% below par. Therefore Genting will likely redeem the 5.125% perp bonds in October.

 

Noble Group Fails the Micawber Test - Spend Less Than You Earn, Get Out of Debt, and Invest for the Future.
https://www.bloomberg.com/gadfly/articles/2017-05-11/noble-group-fails-the-micawber-test


Quote from the above article:

MarcPh      ( Date: 12-May-2017 15:16) Posted: Brief update: Noble 2022 USD bonds crashed another 15%, trading at appx 55% below par this afternoon. This bond price of this issue has dropped 40-50% this week

 

Yup! This is one more additional advantageous feature of such non-cumulative perpetual capital securities! Thanks MarcPh for your sharings! 

MarcPh      ( Date: 12-May-2017 10:54) Posted: Yes sir, perpetual bonds and preference shares allow existing owners of companies and banks to raise capital (technically, capital), without diluting their voting rights. jeremyow      ( Date: 11-May-2017 21:03) Posted: The banks are clever to issue non-cumulative perpetual capital see to raise their liquidity. The features of such instruments fit them well. Firstly, non-cumulative dividends which the bank can decide to pay or not and will not be under obligation to pay back any announced missed dividends as long as they have informed their security holders they will not be paying a particular dividend. And any missed dividends also will not accrue any interests. Definitely a good deal for the bank issuer. But anyway, for shareholders of equity it works the same too. Companies are not obliged to pay dividends to their shareholders and can definitely miss paying any dividends at their discretion. Secondly, the perpetual nature of such instruments means the bank can in principle decide when they will recall the perpetual security in full. It could potentially be forever though there is always a first calleable date stated in the terms and conditions of such instruments, thus as such named perpetual security. Thirdly, as such instruments are not debts, they are a clever means for banks to still meet their capital adequacy requirements while having the funding to do their businesses

 

Brief update: Noble 2022 USD bonds crashed another 15%, trading at appx 55% below par this afternoon.

This bond price of this issue has dropped 40-50% this week

 

High Risk Commodity Companies - Noble Group

Noble' s latest US$750mio 8.75% bonds crashed 30% within a week after the company announced US$129.5mio quarterly losses. Another tranche of US$400mio bonds is due to mature within a year but the current market cap is less than US$800mio. There is another 6.75% $1250mio ($1.25bio) due in 2020. In comparison competitors such as COFCO enjoys ultra-low cost of financing.
 

Latest results:
NOBLE Group fell into the red with a net loss of US$129.5 million for the first quarter despite a rise in revenue as operating income from supply chains plunged. Noble said that the operating environment was very challenging for the group in the first three months of this year." The dislocation in coal markets, and the very thin trading liquidity witnessed in the respective hedging instruments, was detrimental to the short term - 12 week - outturn," it said.
http://www.businesstimes.com.sg/companies-markets/noble-incurs-q1-net-loss-of-us1295m-despite-rise-in-revenue

 

Please take such reports with a pinch of salt. While Noble claims that Coal business was tough, in the same period Indonesia' s Geo Energy Resources claimed that they are fetching good prices for their coal and profits escalated in the first quarter of 2017. (This is not a buy recommendation for Geo Energy Resources, just mocking the half-hearted Noble quarterly report... ...such a shame).

Quote - " The Group&rsquo s revenue increased by US$ 87.4 million or 735% from US$ 11.9 million in 1Q2016 to US$ 99.3 million in 1Q2017. This was mainly driven by the increased volume of coal delivered from the Group&rsquo s SDJ mine, and higher coal prices." http://infopub.sgx.com/FileOpen/Geo%20Energy%20-%20Press%20Release.ashx?App=Announcement& FileID=453138

 

Yes sir, perpetual bonds and preference shares allow existing owners of companies and banks to raise capital (technically, capital), without diluting their voting rights.

jeremyow      ( Date: 11-May-2017 21:03) Posted: The banks are clever to issue non-cumulative perpetual capital see to raise their liquidity. The features of such instruments fit them well. Firstly, non-cumulative dividends which the bank can decide to pay or not and will not be under obligation to pay back any announced missed dividends as long as they have informed their security holders they will not be paying a particular dividend. And any missed dividends also will not accrue any interests. Definitely a good deal for the bank issuer. But anyway, for shareholders of equity it works the same too. Companies are not obliged to pay dividends to their shareholders and can definitely miss paying any dividends at their discretion. Secondly, the perpetual nature of such instruments means the bank can in principle decide when they will recall the perpetual security in full. It could potentially be forever though there is always a first calleable date stated in the terms and conditions of such instruments, thus as such named perpetual security. Thirdly, as such instruments are not debts, they are a clever means for banks to still meet their capital adequacy requirements while having the funding to do their businesses. vivivava      ( Date: 11-May-2017 18:57) Posted: hiding their debt as capital...so for those breaching their gearing ratio, they wd prefer this option they will only redeem if their current borrowing cost is less than the coupon of perp bonds...otherwise it will be perp there on the capital. who wd use perp bonds to raise capital?   those with gearing issues & those that don' t want their CAR to be impacted? Think local banks issue quite a bit of NCPS, quite good yield....4.5 - 5+%

 

The banks are clever to issue non-cumulative perpetual capital see to raise their liquidity. The features of such instruments fit them well. Firstly, non-cumulative dividends which the bank can decide to pay or not and will not be under obligation to pay back any announced missed dividends as long as they have informed their security holders they will not be paying a particular dividend. And any missed dividends also will not accrue any interests. Definitely a good deal for the bank issuer. But anyway, for shareholders of equity it works the same too. Companies are not obliged to pay dividends to their shareholders and can definitely miss paying any dividends at their discretion. Secondly, the perpetual nature of such instruments means the bank can in principle decide when they will recall the perpetual security in full. It could potentially be forever though there is always a first calleable date stated in the terms and conditions of such instruments, thus as such named perpetual security. Thirdly, as such instruments are not debts, they are a clever means for banks to still meet their capital adequacy requirements while having the funding to do their businesses.

vivivava      ( Date: 11-May-2017 18:57) Posted: hiding their debt as capital...so for those breaching their gearing ratio, they wd prefer this option they will only redeem if their current borrowing cost is less than the coupon of perp bonds...otherwise it will be perp there on the capital. who wd use perp bonds to raise capital?   those with gearing issues & those that don' t want their CAR to be impacted? Think local banks issue quite a bit of NCPS, quite good yield....4.5 - 5+%  MarcPh      ( Date: 11-May-2017 13:08) Posted: Given the same company and same maturity, perpetual bonds or preference shares should offer higher yields than plain vanilla bonds. Technically Perpetual bonds are the riskiest bonds issued by the company and Preference Shares are ranked higher-risk that perpetual bonds (one level below Ordinary Shares). Then why do companies issue Perp bonds or preference shares? Technically pref shares are recognized as capital (instead of debts) in accounting terms which can shore up the accounts. Perp bonds of banks are also considered as a form of back-up capital (only applicable to banks).  Banks are supposed to maintain certain level of capital adequacy ratios (CAR) for safe-banking and under BASEL framework, many bank perp bonds have features that force the perp shares to be converted to capital in the event of a breach in the banks' CAR.   Some companies are highly geared but to hint at their sincerity of redeeming the perp bonds after a certain years, they will include the following features: Callable afer X years (redemption) A self-imposed high step-up in coupon after X years if they fail to redeem on first call-date. Dividend stopper - meaning that no ordinary shareholders can get dividend until the perp bond coupons are paid. Accumulative - If they default on a particular coupon, they will still have to pay back when they have the cashflow in future + accrued interests. Bank Perp bonds are not allowed to contain accumulative coupon features but companies can do that for the perp bonds.

 

hiding their debt as capital...so for those breaching their gearing ratio, they wd prefer this option

they will only redeem if their current borrowing cost is less than the coupon of perp bonds...otherwise it will be perp there on the capital.

who wd use perp bonds to raise capital?   those with gearing issues & those that don' t want their CAR to be impacted?

Think local banks issue quite a bit of NCPS, quite good yield....4.5 - 5+% 

MarcPh      ( Date: 11-May-2017 13:08) Posted: Given the same company and same maturity, perpetual bonds or preference shares should offer higher yields than plain vanilla bonds. Technically Perpetual bonds are the riskiest bonds issued by the company and Preference Shares are ranked higher-risk that perpetual bonds (one level below Ordinary Shares). Then why do companies issue Perp bonds or preference shares? Technically pref shares are recognized as capital (instead of debts) in accounting terms which can shore up the accounts. Perp bonds of banks are also considered as a form of back-up capital (only applicable to banks).  Banks are supposed to maintain certain level of capital adequacy ratios (CAR) for safe-banking and under BASEL framework, many bank perp bonds have features that force the perp shares to be converted to capital in the event of a breach in the banks' CAR.   Some companies are highly geared but to hint at their sincerity of redeeming the perp bonds after a certain years, they will include the following features: Callable afer X years (redemption) A self-imposed high step-up in coupon after X years if they fail to redeem on first call-date. Dividend stopper - meaning that no ordinary shareholders can get dividend until the perp bond coupons are paid. Accumulative - If they default on a particular coupon, they will still have to pay back when they have the cashflow in future + accrued interests. Bank Perp bonds are not allowed to contain accumulative coupon features but companies can do that for the perp bonds.   vivivava      ( Date: 11-May-2017 11:13) Posted: anyone know about the intricacies of Perpetual? Is it that its perpetual with no fixed maturity until the fixed callable dates?   Is this more volatile? How do we price this against a traditional plain vanilla bonds?   should be more expensive that traditional bond as it gives issuers some flexibility for capital management.

 

Great sharing on the nature of preference shares and perpetual bonds! 

MarcPh      ( Date: 11-May-2017 13:08) Posted: Given the same company and same maturity, perpetual bonds or preference shares should offer higher yields than plain vanilla bonds. Technically Perpetual bonds are the riskiest bonds issued by the company and Preference Shares are ranked higher-risk that perpetual bonds (one level below Ordinary Shares). Then why do companies issue Perp bonds or preference shares? Technically pref shares are recognized as capital (instead of debts) in accounting terms which can shore up the accounts. Perp bonds of banks are also considered as a form of back-up capital (only applicable to banks).  Banks are supposed to maintain certain level of capital adequacy ratios (CAR) for safe-banking and under BASEL framework, many bank perp bonds have features that force the perp shares to be converted to capital in the event of a breach in the banks' CAR.   Some companies are highly geared but to hint at their sincerity of redeeming the perp bonds after a certain years, they will include the following features: Callable afer X years (redemption) A self-imposed high step-up in coupon after X years if they fail to redeem on first call-date. Dividend stopper - meaning that no ordinary shareholders can get dividend until the perp bond coupons are paid. Accumulative - If they default on a particular coupon, they will still have to pay back when they have the cashflow in future + accrued interests. Bank Perp bonds are not allowed to contain accumulative coupon features but companies can do that for the perp bonds.   vivivava      ( Date: 11-May-2017 11:13) Posted: anyone know about the intricacies of Perpetual? Is it that its perpetual with no fixed maturity until the fixed callable dates?   Is this more volatile? How do we price this against a traditional plain vanilla bonds?   should be more expensive that traditional bond as it gives issuers some flexibility for capital management.