A Noble Effort

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Singapore company involved in coal and funded by global yield hungry investors.  Has $3.3 billion net debt and makes $125 million negative cash flows.  Only hope was President Trump buying all that coal.  The company reported a quarterly loss of almost $130 million – won’t return to profitability until at least 2018-2019.

Leverage on Leverage

NobleThis is the beginning of a colossal commodity driven credit collapse. Central bank funded moral hazard gone rogue! May 15th, Noble Group Limited Cut To Caa1 From B2 By Moody’s: “Downgrade reflects heightened concern over Noble’s liquidity stemming from its weak operating cash flow and large debt maturities over the next 12 months, Moody’s says. Moody’s also cites significant uncertainties over an operational turnaround and the high likelihood of debt leverage remaining elevated after company reported 1q loss.  Outlook remains negative.”

  • Validity of any recovery estimate would be based largely on where the assumptions regarding fair value of the contracts are at, which is a difficult task given the disclosure levels –  Citi
  • Recovery rate on Noble’s senior unsecured debt at between 47 cents and 83 cents depending on the discount rate assigned to its assets – Nomura

All part of our Lehman 10th anniversary book, coming Sept 2018.

Much of the leverage build out in the global commodity space comes from the colossal banking system in China relative to the country’s economy.

Bank ChinaChina’s banking system and underlying economy is far more leveraged than her global peers.

China’s Share of Global Refined Copper Consumption

2020: 42.8%*
2017: 46.2%
2010: 37.7%
2000: 10.4%
1990: 8.1%


Wood Mackenzie data

The tailwind from China is rolling over as they de-lever.  The gravy train is not making its next stop. From 1990 to 2015, Chinese consumption of refined copper increased from 622kt to 10.6mt, explaining nearly 92% of the total growth in global copper demand. Looking ahead, the growth in the Chinese demand for industrial metals is likely to be much more muted, also contributing to lower commodities returns relative to historical experience.

China 5 Year Credit Default Protection

China 5 YearThe insanity of the current global credit profile is on display right here.  If you want to buy default protection on the MOST levered economy on the planet earth, its very cheap.  This reminds us of Citigroup in 2007, default protection was extremely cheap relative to the underlying credit risk, investors didn’t care.  History is repeating itself RIGHT before our very eyes.