Noble Group’s "Collateral Margin Call"

Tyler Durden's picture




 

By Simon Jacques

Noble Group’s "Collateral Margin Call"

The downgrade of Noble Group by Moody’s depicts an aggressive financial risk and a vulnerable business risk profile

I) the first-order problem is Macro.

"The downgrade of Noble Group to junk status is worrisome, but the main story is about the evolution of the commodity price downtrend. 1st round effects were felt in macro indicators (lower CapEx & growth for producers and following FX/interest rate adjustments). 2nd round effects will be about commodity exporters' governments reactions."

Those effects will dominate in 2016 said Sacha Duparc, Head trader and structurer at Banque Cantonale Vaudoise.

II) Collateral margin call.

The trader has billions of dollars in commodity prepays with NOCs and producers and the value of inventories and receivables collateralized by traders into trade finance arrangements have cratered in the past year.

This collateral value of Noble Group is being depressed, those loans are been called even if Noble Group (buoyed by liquidity in 2015) never missed a payment because the market knows that Noble’s assets are worth less they claim on their books.

Banks are requiring at least 1.6 B$ more in additional collateral, equity that Noble Group hasn’t built over the good commodity years…

Noble is being placed into either bankruptcy or they are been place in a tremendous economics adversity that so far they've not seen in 2015.

"People have been hopeful that Noble might avoid a rating downgrade after the asset sale but it couldn’t,” said a Hong Kong-based credit trader at a Japanese investment bank.

Noble's move to raise US$750 million by selling its remaining stake in Noble Agri. I repeat what was said in a previous comment: Noble Agri Sale was strictly a Collateral margin call.

Noble Group must raise money but their collateral base is new book value of 4,528 million while their Net Positive fair values gains of commodity contracts and derivatives exceeds MTM is over 4,500 million…

By any model, this MTM represents between 90% and 105% of their book value.

Banks aren’t provided with the access of the exact breakout of the 4,500 million and PwC has not been able to review the exact assumptions and models behind these Net Positive fair values gains of commodity contracts and derivatives. Perhaps, Antoine Lavoisier, French nobleman of the 18th century and father of modern chemistry must have a great influence on the financial reporting of Asia’s Largest Commodity trader with "Nothing is lost, nothing is created, and everything is transformed".

Solvency Problem, not liquidity

I will make it clear that it is not Liquidity that banks are asking but for more Collateral from Noble starting this year because they also understand that this MTM gain on commodity contracts and derivatives of Noble will unlikely be realized at more than 10% and therefore is not valid collateral for the trader’s working capital borrowing base requirements.

A close friend hedgie in NY reminded me that at the height of 08', a IB sale desk lured them into "taking a position into undervalued trading books of the bank temporarily mispriced because of market illiquidity". At only 66 cents on the Dollar, the deal turned-out to be 0.6 cent sinky.

Enron-esque memes

To put Enron in the context of 1999-2001s, it was not only the world’s largest energy trader; it had also the same gleaming and appeal of the Trafiguras or Vitols of today.

A trading or a mgmt position at Enron meant that you could do a 6 digits salary and touch a 7 digits bonus. Most of it was a management incentive program with the Enron Corp share derivatives used as a currency.

Many people at other firms were lured into mgmt and trading positions by commodity headhunters hired by Enron Corp providing "an offer that nobody could refuse" just months before the collapse.

There are some parallels with Noble Group, one I guess is that Noble recently brought new faces people from other firms in Geneva like Kev Brassington into offers that they could not refuse in their career path.

Enronesques parallels with Trafigura.

Medias have recently bragged about “$775m bonuses” to 600 of Trafigura employees related to bumper profits from oil trading”. However I note in the disclaimer that's as an all stock 5 year LOCK buyback type program, again something tied to its future performance and the commodity curve.

When Enron collapsed, the story that I know is that an average trader and VP have registered 7 digits each (real losses), so it is fair to say that VPs, Management and traders were also conned. More than financial losses, can you think about the moral damages that they still endure because they spent between 12 and 6 months at Enron ?

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Sat, 01/02/2016 - 14:48 | 6988555 _ConanTheLibert...
_ConanTheLibertarian_'s picture

I got some collateral damage for sale. It's a new investment vehicle.

Sat, 01/02/2016 - 14:53 | 6988563 Clockwork Orange
Clockwork Orange's picture

The cabal working to acquire all real assets at major discounts.  That will be their last such game before the mega-reset.

Sat, 01/02/2016 - 15:51 | 6988682 debtor of last ...
debtor of last resort's picture

Five years four comments?

Sat, 01/02/2016 - 17:36 | 6988991 Tom Servo
Tom Servo's picture

Comments aren't kept indefinitely Sherlock...

Sat, 01/02/2016 - 18:22 | 6989202 debtor of last ...
debtor of last resort's picture

I know. Couldn't remember his name too. Maybe im getting paranoia.

Sat, 01/02/2016 - 22:02 | 6989713 CheapBastard
CheapBastard's picture

It's simply moar of Barry's "Carnage you can beleeve in " that's hitting Noble hard looks like. They need to get Noble to a Safe Space.

Sat, 01/02/2016 - 15:01 | 6988572 ebworthen
ebworthen's picture

Will the S.E.C. go after Moody's for downgrading Noble?

Will they ever find Jon Corzine?

Ponziconomy fore-word!

Entitleist!

Ping!

Sat, 01/02/2016 - 16:33 | 6988738 tc06rtw
tc06rtw's picture

   
 …  I am reminded of Orson Welles’ film,  “The Magnificent Ambersons.”
  
The members of that dysfunctional family of massive (dwindling) wealth devote their every effort to obscuring their approaching poverty and shielding the family’s spoiled, conceited scion from the  “comeuppance”  the viewer knows is inevitable.
  
  
When the crisis arrives,  Welles narrates:

“Something happened. A thing which, years ago, had been the eagerest hope of many, many good citizens of the town, and now it had come at last; George Amberson Minafer had got his comeuppance. He got it three times filled, and running over”

  
The  “Leaders”  and  “Economists”  and  Central Bankers  of EVERY  “advanced” nation are totally in cahoots, coordinating like mad to keep the casino up-and-running, even though every intelligent person knows it’s been burning down for decades and eventually must collapse.
  
  
Verily I say unto thee:  I may not be around to see it, but the Millennials and the Gen-X’ers  are due a lesson, three times filled, and running over.
  

Sat, 01/02/2016 - 17:17 | 6988931 sun tzu
sun tzu's picture

Depends on how connected NG is to TPTB. The world is run like the mafia

Sat, 01/02/2016 - 15:21 | 6988613 buzzsaw99
buzzsaw99's picture

so for the sake of less than a billion in notional bonuses those fucktarded maggots can fuck up the world energy market? awesome.

Sat, 01/02/2016 - 15:42 | 6988658 Fuku Ben
Fuku Ben's picture

At Enron after they had already collapsed and were under investigation certain execs conspired to pay out and deliver bonuses to other valued resources. They had manual checks cut and had them hand delivered. Probably to avoid additional felonies for using the USPS if they were caught. Which they were. There never seems to be a shortage of criminals and supportive minions inside of corporations running some scam or trying to steal every last centavo they can. It won't be any different as economies go down.

The UN Human Rights Council Chair Saudi Arabia is willing to lead the oversight of Wall Street. They've offered to kick off each Wall Street trading day bell ringing session with beheadings.

Sat, 01/02/2016 - 15:53 | 6988688 Strelnikov
Strelnikov's picture

Glad to hear there will be more than one beheading per trading day  There's a big backlog to clear.

Sat, 01/02/2016 - 17:20 | 6988938 sun tzu
sun tzu's picture

Back then the scum at Enron, WorldCom, and Tyco ended up in prison. These days, they get a little slap on the wrist or like Corzine, not even an investigation into $4B missing. The lame stream media maggots don't even bother to ask why not.

Sat, 01/02/2016 - 18:05 | 6989131 Publicus_Reanimated
Publicus_Reanimated's picture

Because they know if they jail one they have to jail them all.

That's called "Too many to jail".

Sat, 01/02/2016 - 21:21 | 6989630 Sorry_about_Dresden
Sorry_about_Dresden's picture

Only jail brownies!  Raj and Gupta. 

Sat, 01/02/2016 - 16:52 | 6988834 Librarian
Librarian's picture

EBRD supports Noble Group in Ukraine and Turkey
https://tradefinanceanalytics.com/Articles/2232571/EBRD-supports-Noble-G...
06-12-2009

Noble receives EBRD Loan to Set up Shop in Ukraine
http://www.ukrinform.net/rubric-ukrnews/1005875-ebrd_providing_usd_24mn_...
07-15-2010

Jim Cramer:  Noble Energy - BUY BUY BUY!
http://www.thestreet.com/story/12511904/1/dicker-ukraine-crisis-makes-no...
03-15-2014

Noble Group "Nobbled" By Anonymous Critic - Noble Responds A-Okay But Won't Discuss Valuations of its Contracts
http://www.economist.com/news/business/21646233-big-asian-commodity-trad...
03-14-2015

Noble Clean Fuels, ENGIE to supply gas to Ukrainian Naftogaz using EBRD funds
https://www.kyivpost.com/article/content/ukraine-politics/noble-clean-fu...
12-17-2015

Sat, 01/02/2016 - 20:04 | 6989442 Nobody For President
Nobody For President's picture

Well, Jim Cramer said buy, buy, buy, so argument over.

BTFD stupid!

 

Sat, 01/02/2016 - 20:31 | 6989513 Fish Gone Bad
Fish Gone Bad's picture

It will be interesting to see who/what all fall apart once Noble gets future-sized.

Sat, 01/02/2016 - 21:53 | 6989694 VW Nerd
VW Nerd's picture

Is this the same Noble that explored the Eastern Med and discovered the huge Leviathan oil and Gas reserves off the coasts of isreal, Gaza, Lebanon and Syria??

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