Showing posts with label Singapore. Show all posts
Showing posts with label Singapore. Show all posts

Thursday 13 February 2020

Goldilocks and the 3 Bears - A Financial Fairy Tale - Part II Noble Group

Die gescheiterte Hoffnung

Part II of a three-part series.  Part I here.

Goldilocks foray into the Noble Group has already been analyzed in an excellent detailed post by Arkad.

There is no point in my doing any analysis. So I’ll just post the link.

This quote by Arkad should serve as a teaser to spark your interest in taking a side trip away from Suq Al Mal, if indeed you need any teasers at all.

As of Friday 9th November [2018], Noble’s share price closed at SGD 0.089. Goldilocks’ average entry price was SGD 0.50. Goldilock’s USD 38.8mn investment is now worth USD 6.9mn – effectively a -82% loss.
Since Arkad wrote this post, Noble Group Ltd (the “old” company) delisted. After a debt restructuring, the successor company Noble Group Holdings emerged.

Old Noble shareholders were given 20% of the equity in the new company with creditors taking 70% and management 10%.

Clearly a sign of extreme financial distress in the old company. No doubt a source of distress of another kind among its “old” shareholders.

According to the restructuring of Noble Group Ltd (Old Noble) shareholders received 1 share in Noble Group Holdings (the Newco) for each ten they held in Old Noble.

That means Goldilocks was entitled to 10,756,450 shares. Noble Group Holdings as some 663,761,605 shares par value USD 0.01.

That gives Goldilocks a 1.6205% shareholding versus its 8.19% shareholding in the old company. That’s dilution with a capital “D”.

Not a good start.

But that’s not all the bad news.

Noble Group’s 3Q2019 financials contain scant evidence of any comfort for Goldilocks.

Net loss of USD 47 million for the nine month period.

Comprehensive loss of USD 71 million.

Noble Group Shareholders’ total equity at USD 60 million down from USD 130 million as of 31 Dec 2018.

Based on book value as of 30 September 2019 and Goldilocks’ 1.6205% ownership, its investment is worth USD 972,317. Or a loss of some 98% of the initial investment.

If we look at equity as of 31 December 2018, the loss is only 96%.

Whether Goldilocks reflected the full loss mentioned above or used the last stock price, it would have taken a 2018 loss between USD 32 million to USD 37 million.

If you’re keeping track and AA sure is, the losses in FY 2018 from GFH and Noble total some USD 60 million.

On its face Noble seems a perplexing choice for an investment given Goldilocks stated investment strategy as “Goldilocks invests in listed equities with a long-term goal to compound our capital at an above average rate of return while minimizing the risk of loss of capital by taking a constructive activist role in listed companies to unlock value.”

The point I’m focused on is the bit about risk control.

It was pretty clear that Noble’s problem was not one of inefficiency in its operations.

There was little “unlocked” value apparent.

Rather it was a distressed firm burdened by debt which exceeded its repayment capacity. 

Investors usually “play” this sort of situation for the short term. If one thinks the company has a future, buy the debt at a distressed price and then flip it when the price rises. 

Or buy the debt at a discount and hold on to it assuming that the debt will be exchanged for equity at a very favorable “price”. Equity which one can then “unload” at a profit.

Why?

Because when creditors restructure a distressed company, they focus on getting paid back

Debt service not new investment in the business is prioritized. Lack of funds also erodes the existing franchise.  

Dividends curtailed. 

Often sadly assets are fire-saled at less than fair values in order to reduce debt.

In the most extreme cases creditors take equity away from the previous shareholders.

And debt restructurings are multi-year affairs. Sometimes more than one restructuring is needed.

So the constraints on growing the business reman for years.

”Constructivism” via the Board won’t work because the Board’s hands are tied by the restructuring agreement.

None of this should be “news” to sophisticated investors. There are abundant historical case histories.

The “sad” story of Global Investment in Kuwait or the even more tragic story of TID are well known. The latter locked in Satrean "No Exit".

Why Goldilocks took this rather perilous path isn’t clear.

So far not so good, but Goldilocks struck “gold” on the next investment.

Saturday 31 December 2016

National Bank of Oman and the "Mysterious" Treasure Fleet International

Not To Scale

Larger Than Life

You may have seen articles that Treasure Fleet International of Singapore had offered to buy a stake (amount undisclosed) in National Bank of Oman.  Gulf News.  Reuters.
Here’s the report from the Times of Oman.  Emphasis courtesy of AA.
Muscat: National Bank of Oman (NBO) on Thursday said that it had received a letter from Treasure Fleet International Pte Ltd proposing to acquire a stake in the bank.

“The proposal from Treasure Fleet International Pte. Ltd. will be reviewed and discussed by the board of directors. Further disclosure concerning this matter will be made if there are developments to report,” said a bank disclosure statement posted on MSM website.

NBO also said that no legally binding commitments have been made and this matter is still subject to review and approval by NBO’s board of directors, the shareholders of NBO and the local regulatory authorities.
Treasure Fleet International is a Singapore-based firm, according to its website, which is under development.
That last bit caught AA’s eye.  Off on a buying spree, but doesn’t have a working website.

But the press doesn't seem to have a clue about TFI.  Or was unable to find a clue.  Or didn't bother to.
AA did a cursory search via the internet and learned:
  1. As per the Government of Singapore’s “bizfile”, the company was formed and registered in Singapore 24 August 2016 with Ng Lee Ken (NLK) filing the paperwork.   The same source notes that on 29 August NLK also filed a change of shareholders. Check the EROM section.  Side note:  This is fairly common.   A local registered agent opens a company using its personnel as shareholders of record and then subsequently amends the shareholders’ list to reflect new shareholders (presumably the actual owners or their other nominees).
  2. As per Singapore’s Business Times, TFI was formed with between S$500,00 to S$5,000,000 (roughly US$345,000 to US$3,448,000) in capital.
  3. As per AA's research, TFI shares its Singapore office and telephone number 65 6286 3622 with the following other companies:  Andromedic/MEA; Elite Power; and VKMCS (Victory Knights Management Consulting Service).
  4. The Oman Connection Updated: Elite Power has an office in Oman.    VKMCS is no stranger to Oman having relationships with Bank of Muscat, Al Ramooz Group of Companies, Voltamp Oman,  and the Royal Oman Navy and joint partnerships with TFI and Andromedic.  VKMCS also appears to be related to Seven Seas Victory Knights Company LLC Oman.  A common principal individual appears to be a Mr. Nicholas Koh
So what we’ve got here is a 4 month old company with no more than US$3.4 million in capital apparently making an offer to buy a stake in NBO significant enough for NBO to file a report with the Muscat Securities Market.
Curious. 

At first blush TFI seems to be rather small tonnage for a sea voyage of this sort. But with the network of affiliated companies, who knows?
There is additional information for sale at “bizfile”, though it seems one needs a SingPass to pay. SingPass is restricted to Singaporeans and those with residence.   Neither of which AA qualifies for. 
So an appeal to any of SAM’s Singaporean readers out there or other folks more clever than AA to buy the documents and post a comment with details of shareholders of record.  Perhaps the Oman connection goes deeper.
For that purpose, TFI’s UEN (corporate registration) is 201623102G. 

Its registered address is:
62 UBI ROAD 1
#09-03
OXLEY BIZHUB 2
SINGAPORE 408734

Good hunting!

Wednesday 7 September 2016

SWIFT RMB Tracker August 2016 Issue - Further Thoughts on the Increase in RMB Usage in South Africa




SWIFT issues an excellent free monthly publication on use of the RMB in payments outside the PRC:  RMB Tracker.   As part of tracking RMB usage, RMB Tracker provides a monthly value-based comparison of the top twenty currencies so even if you're not interested in RMB usage you can track the fate of other currencies. 

You can either sign up for a monthly email or browse issues at SWIFT’s website.


The report is based on customer and bank payment orders (SWIFT MT Series 100 and 200 instructions).  SWIFT, of course, isn’t the only messaging system that financial institutions use.  However, it is widely used—probably the most widely used method for sending payment orders.  Thus, the report should give a very good indication—though more directional than precisely locational—about changes in the use of the RMB.  

The August issue focused on the Republic of South Africa (RSA).  Immediately below are extracts from the August RMB Tracker.  I've used boldface to highlight key points as well as the comments I will focus on. 

"Brussels, 24 August 2016 – SWIFT data shows that Renminbi (RMB) usage in payments in South Africa increased by 65% over the last 12 months and by 112% in the last two years, moving the country from position #30 in July 2014, to #24 in July 2016. Excluding domestic traffic, RMB payment messages increased in volume by 70% in the last 12 months. In addition, nearly 40% of RMB payments by South African institutions have been offshore payments exchanged with countries other than China and Hong Kong, compared to 16% in July 2015."

 “South Africa has experienced a major shift in RMB growth over the last two years, strengthening the country’s trade relations with China and Hong Kong,” says Harry Newman, Head of Banking, SWIFT. “The establishment of an RMB clearing centre in South Africa in July 2015, as well as Singapore’s increased use of the RMB for payments with South Africa, have been a catalyst for RMB growth in the region.”

A couple of things caught my eye.

But before I begin a technical note:  SWIFT’s analysis on the RSA is based on the change in the number (not value) of RMB payments to/from the RSA.  (Page 2).   The number of transactions is one way to measure adoption of the RMB for transactions.  However, I’d prefer analysis based on value, assuming both weren’t available.   If the volume increase is being driven by a large number of small value payments that would put a different spin on the increase figures than if the increase in number were closely tracking value.  


Why doesn’t SWIFT provide this?  They have the data.  In addition to the (free) RMB Tracker, SWIFT have a paid subscription sister publication and  presumably aren’t going to cannibalize its appeal by providing more information in Tracker.

As you read what follows, bear in mind that the lack of information on aggregate payment value constrains the analysis that follows.

Now to my comments.


As written, the report could be read to imply that South Africa has dramatically increased its RMB denominated transactions.   This is not strictly speaking the case.  Since the PBOC’s appointment of Bank of China’s Jo’burg branch (hereafter BOCJ) as the RMB clearing bank in RSA, BOCJ has marketed RMB correspondent banking services elsewhere in Africa.  The increase in volume reflects transactions from other African countries, not just the RSA.

We can find details of this activity in a February 2016 article by Yu Meng in The Peoples' Daily Online and which the South African China Economic and Trade Association relayed on its website.  I’ve highlighted the relevant portions in red and added some comments of my own in boldface blue.

"According to Bank of China, in the "first ten months of 2015, the Renminbi trade settlement and investment amount in and out of Africa (AA: that is, not just RSA) has grown 35% to 126.6 bn yuan (R254 bn).  Half the amount is facilitated by Bank of China’s Johannesburg branch (AA: Here we have a USD equivalent number.  Note BOCJ handles one-half of the aggregate value amount for Africa not just RSA) , which was authorized in July 2015 by China’s central bank, the People’s Bank of China, to serve as the clearing bank for Renminbi business, the first in Africa."

"At the moment, the Johannesburg Branch’s Renminbi service has reached more than 30 African countries, and opened 69 Renminbi clearing accounts for financial institutions in Africa."

(AA:  While we don’t have the volume of these non-RSA transactions nor the amounts, they could well account for a significant portion of the RMB payments attributed to RSA by SWIFT).

"Li, executive vice president of the Johannesburg branch, oversaw a 2.7 bn yuan (R6.08 bn) transaction on Nov 30th for a Mauritian client — the bank’s biggest single clearing deal in Africa. “We wouldn’t have even imagined a transaction in Renminbi this big last year and because of the PBoC’s authorization we expect to do more,” says Li."


(AA:  The wording is ambiguous.  It’s not clear if this was an outgoing or incoming payment.  In either case, it seems a rather large amount for single commercial transaction especially given the amount and nature of bilateral trade between the two countries. Mauritius annually imports roughly US$1 billion equivalent from the PRC – making this single payment over 40% of annual imports. 

The PRC is not among Mauritius five largest export markets.  RSA is in fifth place and annual exports are roughly US$200 million equivalent so it’s unlikely this was an incoming payment for Mauritian goods.   


Given that and the fact that Mauritius is an offshore financial center,  AA suspects that this transaction was financial not commercial.  This was a relatively large RMB transaction—apparently the largest or one of the largest in Africa.  If it is an outgoing payment, its origin may not be Mauritius.  If it is incoming ,its final destination may not be Mauritius.  


Given reports of Chinese parties engaging in “gray” cross-border transactions (AA’s euphemism of the post), AA imagines that a lot of parties might have an interest in finding out more details, particularly if this were a repeating transaction.

Second, Singapore’s increase in RMB payments to the RSA is also interesting. 

If they are trade related, that would imply that the RSA has either redenominated invoicing on existing trade or has "new" trade conducted in RMB.  If so, I’d expect that that pattern would be evident in RSA trade with other countries.  That’s based on the assumption that if the RSA is moving to a greater use of the RMB in its trade, it would be doing so with more than one country. 

That doesn’t have to be the case of course.  Perhaps, there was a unique opportunity to increase sales with Singaporean entities.  As well, the information SWIFT has provided on the increase is based on number of payments not value. 

Assuming that value is tracking to some extent the number of payments (again this need not be the case), as above, I suspect that transactions are financial not commercial.  Perhaps, BOCJ is obtaining RMB for its operations from Singapore via for example FX transactions. While ICBC Singapore is the PBOC-designated RMB clearing bank (in Singapore) and not BOC Singapore, Singapore has some 110 or so banks.  Besides local banks that are active in the RMB, the country has a variety of foreign banks including banks from the PRC (BOC has a full branch) and from Hong Kong SAR who likely have RMB-denominated business and could serve as counterparties.