Noble cashes in on US unit – will restructure follow?

Investors say the financially-battered commodities trader needs to build on momentum from US oil deal and swiftly outline a debt restructuring plan.

Embattled commodity trader Noble Group is expected to start restructuring talks with its major lenders and creditors, as the sale of its US oil business fetched at a price a tad better than expected.  

The Singapore-listed company said on Monday it would sell its American oil trading unit to Vitol, the world’s largest oil trader, for $1.4 billion, and receive cash proceeds of about $582 million after deducting debt of about $836 million.

However, the company also warned that it made a total net loss of $1.1 billion to $1.25 billion in the three months to September, citing non-cash losses and underlying trading results. In August, The group had reported a $1.75 billion net loss for the three months to June. Four days after those earlier quarterly results, Moody’s, S&P and Fitch cut Noble’s credit rating by one or two notches to Caa3, CCC- and CCC, respectively, reflecting a significant default risk in the next few quarters given its cash burn.

“The sale of its oil trading business in the US gives Noble some positive momentum going into a liability management exercise,” Todd Schubert, head of fixed-income at Bank of Singapore, the private banking unit of OCBC, told FinanceAsia. “It likely raises recovery realisations under a restructuring scenario modestly. I believe that bonds are probably up $1-$1.50 on the 2020 and 2022 on the news.”

The company’s 6.75% 2020 bond rose 1.3 cents on the dollar to 39 cents in the secondary market, the largest daily gain in more than a month. However in the stock market, the Singapore-traded shares fell more than 6% on Monday, continuing a dismal showing that has seen a 90% decline in market value this year.

The price of the asset sale was higher than market expectations. Investors previously expected the company to get between $1 billion and $1.2 billion for the US oil business. In a one-line statement, Vitol confirmed the purchase, without further elaboration.

Noble Group will release its third quarter operating results in mid-November and confirmed on Monday it had obtained an extension of covenant waiver for its unsecured revolving credit facility to December 20.

In July, Noble said it would raise $1 billion from the asset disposal in the North America oil business in the next two years as the newly appointed chairman, Paul Brough, sought to tackle the group’s $3 billion debt mountain.

In the past two years, Noble, founded by Richard Elman in 1986, has been forced to reshuffle senior management, dispose of assets and trim costs to boost liquidity. The company is now returning to its roots as an Asia-focused firm in coal trading and liquefied natural gas and freight businesses.

Credit analysts see the latest development as credit neutral to slight negative because the deal comes with a substantial net loss due to impairments.

“Overall, we maintain our view that the company’s current capital structure is not sustainable and that it will need to conduct a debt restructuring,” Annisa Lee, an analyst at Nomura, wrote in a note on Monday.

Based on her assumptions, she said, holders of Noble Group bonds may be forced to take about a haircut 48% of their principal and settle for a recovery rate in the mid-to-high 30s.


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