Lenders back Noble despite Muddy Waters attack

Commodities trader Noble Group, under attack for the second time this year, finds support from lenders who brush aside allegations to back a $2.25 billion loan facility.

Commodities trader Noble Group, founded by British businessman Richard Elman, came under fresh attack from short-seller Muddy Waters last week, but relationship lenders showed their support by extending the commodities trader a $2.25 billion loan.

A group of 15 banks last week launched syndication on the $2.25 billion revolving loan facility. The banks were ANZ, Bank of America Merrill Lynch, Bank of Tokyo Mitsubishi, Citi, Commonwealth Bank of Australia, Rabobank, DBS, Goldman Sachs, HSBC, Intesa Sanpaolo, JP Morgan, National Bank of Abu Dhabi, Societe Generale, Standard Chartered Bank and United Overseas Bank.

We have banked the company for many years, this is not the first time it is raising money,” said one lender. “If it was any other company, we may act differently but we have a view on the credit,” the lender added.

The loan amount was smaller than the $3 billion originally expected, but according to a second lender, the company had raised about $2.5 billion of debt through its Noble Agri unit and the decline in commodity prices has meant that the working capital needs of traders such as Noble have also fallen.

"These attacks do happen, but we have decided to stand by them as have fourteen other lenders," the second lender added. 

The Muddy Waters report released on Wednesday accused Noble group of “existing solely to borrow and burn cash.” It questioned the company's debt levels and its ability to generate cash, stating that Noble Group has been cash flow positive for only four out of 20 years.

In addition, it also questioned a $46.4 million gain Noble Group booked in relation to the purchase and sale of Indonesian coal mining company PT Alhasanie. 

Noble Group, which has former Goldman Sach banker Yusef Alireza at the helm as CEO, on Friday fought the allegations, saying it rejects the assertion that Noble exists to borrow and burn cash.

“In fact, our balance sheet has never been stronger. Furthermore, the time period of 20 years referenced by Muddy Waters has seen Noble grow from a company with $377 million of revenue to revenues of more than $85 billion,” the company said in its Singapore exchange filing.

It also rejected the notion that its debt levels are unsustainable, stating that as of end December 2014, the company’s debt to capitalisation was at a historic low of 38%. Half of its outstanding debt has a maturity of over two years, Noble said. 

It also rejected the allegation that it had “misled investors or manipulated the accounting” in the acquisition and disposal of PT Alhasanie and said that the accounting treatment was explainable through third party independent valuations and arms-length commercial arrangements.  

After initially slumping on Thursday, Noble Group’s stock was up 3.5% on Friday, as the company responded to the allegations. 

This is the second round of attacks that Noble has sustained in the past two months. In February, Iceberg Research published a report saying the group used inappropriate accounting methods to avoid impairments and inflate profits. At that time, Noble rejected those allegations, too.

Noble is expected to close syndication on the loan in about a month’s time. It said it would use the proceeds for the refinancing of existing debt and general corporate purposes.


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