Goldilocks, an indirect subsidiary of Abu Dhabi Financial Group, is alleging the trader inflated profits to raise money
Noble Group is being sued by one of its top shareholders in a fresh blow to the embattled commodities trader as it defaults on debt obligations.
Goldilocks Investment, based in Abu Dhabi, filed a lawsuit Tuesday in the Singapore High Court against the company and executives, including founder Richard Elman, alleging the trader inflated profits to raise money, according to a copy of the writ of summons seen by Bloomberg.
Separately, S&P Global Ratings cut Noble’s credit score to a level signifying default after it said the trader missed principal and interest payments on dollar-denominated bonds due Tuesday.
Once Asia’s largest commodity trader, Noble is teetering on the brink of collapse following a crisis that started three years ago when Iceberg Research began publishing critiques of the company’s accounting.
Executives led by Chairman Paul Brough are now trying to push through a restructuring plan that’ll hand control to a group of senior creditors but they’re facing opposition from shareholders and some creditors.
“If anything, this will likely drag out the debt restructuring process and increases the uncertainty on the outcome,” said Ang Chung Yuh, a credit analyst in Singapore at iFast Corp.
“It’s not good news for Noble for sure. It remains to be seen how much strength Goldilocks can muster in terms of their shareholding.”
The suit alleges managers paid themselves inflated salaries, then attempted a cover-up when the accounts came under increased scrutiny, according to a copy of the case filed by Morgan Lewis Stamford LLC and seen by Bloomberg.
As well as Elman, the defendants include Brough, Chief Executive Officer Will Randall and Chief Financial Officer Paul Jackaman.
Noble Group said in a statement that it had yet to see the writ.
"The allegations as reported are without merit and we will vigorously defend the case," it said.
Daniel Chia, a Morgan Lewis Stamford lawyer acting for Goldilocks, said: “We confirm that our client has commenced proceedings in the Singapore High Court."
Goldilocks - a fund managed by ADCM Altus Investment Management, an indirect subsidiary of Abu Dhabi Financial Group - is seeking relief from Hong Kong-based Noble on behalf of shareholders, including about $169 million paid to executives between 2011 and 2017, as well as any interest and damages assessed by the court, according to the lawsuit.
The 72-page filing cites allegations made by long-time critic Iceberg. Goldilocks also wants a declaration from the court that the defendants breached their fiduciary duties.
Some of the defendants “sanctioned aggressive revenue recognition and creative accounting policies in order to inflate the valuations of Noble’s ‘associate companies’ and long-term commodity contracts,” the lawsuit said. It added: “The objective of these overvaluations was to inflate Noble’s revenue and balance sheet.”
Goldilocks began building up its equity holding in Noble last year, plowing in funds even after the trader had faced criticism. In January, Goldilocks urged the Singapore regulator to probe Noble’s actions, saying that there were grounds for an investigation into the company, its directors and management.
It has also been vocal in opposing the restructuring proposal.
In the writ, Goldilocks said some of the defendants “relied on the inflated profits and balance sheet to raise capital through bond and right issues on the SGX and borrowing from financial institutions,” according to the filing. The SGX refers to the Singapore exchange.
The lawsuit may be another significant hurdle for the restructuring process, which needs approval from bondholders as well as shareholders. The company has outlined a tentative timetable that stretches through to late July for the planned overhaul.
As it races to shore up support for the plan, Noble said on Friday that it wouldn’t pay $379 million of principal on its 2018 bonds due on Tuesday, triggering the downgrade by S&P. The company also said that it wouldn’t be paying a coupon on its 2022 notes that had come due earlier this month, on which it has a 30-day grace period.
“The failure to make these payments will trigger cross-defaults on the company’s other obligations,” S&P said in a statement as it cut Noble’s issuer rating to D from CC. “We do not expect Noble to meet any outstanding obligations as the company preserves its assets during the restructuring process.”
The case is Goldilocks Investment Co. vs Noble Group Ltd., S295/2018, Singapore High Court.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.