Bloomberg: Noble Group Warns of Loss Topping US$1 Billion

Noble Group (Noble) warned of a more than US$1 billion third-quarter net loss as it agreed to sell most of its oil business to Vitol Group (Vitol), prolonging the embattled commodity trader’s survival while highlighting the challenges ahead.

Details of the sale failed to give much clarity on how much Noble would ultimately receive from Vitol for its prized oil-trading unit, while the likely third-quarter results highlighted the company’s struggle to return to profitability as it offloads assets to repay debt.

“They are still fighting to survive,” Nicholas Teo, a trading strategist at KGI Securities (Singapore), said by phone.

The company agreed to extend a covenant waiver on a US$1.1 billion revolving credit facility until just 20 December 2017, highlighting how lenders are keeping Noble on a tight leash as analysts say a debt restructuring looks likely. At the same time, its continuing business, largely coal and iron-ore trading in Asia, is likely to report a net loss of up to US$100 million for the third quarter.

While Noble’s stock slumped as much as 12 percent in Singapore, extending a more than 90 percent retreat since questions over its financial reporting emerged in early 2015, debt investors reacted more positively.

Bonds due in 2020 rose 4.2 percent to 39.6 cents on the dollar. Prices had fallen last week after Vitol Chief Executive Officer Ian Taylor had said that the deal was “very complicated”, raising the prospect that the two sides would not reach deal.

S&P Global Ratings said the deal with Vitol did not change the risk of Noble defaulting.

Distressed Levels

While the company has defended its accounting, its bonds have tumbled to distressed levels as it has written down the value of its long-term commodity contracts, ousted senior managers and reported a string of trading losses.

Noble said that based on its end-June accounts it would have received net proceeds of US$582 million from the oil unit deal after paying back borrowings under a secured credit facility.

But that figure included proceeds from the earlier sale of its gas-and-power unit, the company said, and was prior to a third quarter in which the business was “adversely impacted” by “capital constraints.” Based on the end-June number, the company would report a US$525 million loss on the sale.

Complex Deal

What is more, the deal is complex: Vitol will pay US$174 million of the closing price into three separate escrow accounts, Noble will carve out some oil deals and wind them down separately, and the final price is contingent on several side deals.

Vitol said it had taken advice from three different law firms. Highlighting the risk that the deal could fall through before a final agreement is signed, Noble agreed to pay a break fee of US$40 million in case the sale was scrapped for reasons including its bankruptcy.

The deal for the oil business, one of Noble’s most valuable remaining assets, follows the sale of a smaller gas-and-power trading unit to Mercuria Energy Group, which was completed last month.

“The operating environment continues to be challenging,” Noble said. “Conservative liquidity management and constraints placed on the group’s access to trade finance lines led to disruption costs and prevented the group from taking advantage of profitable trading opportunities.”