• Trader was said to be seeking $3.5 billion as profit falls 62%
  • Banks cut credit facilities, reducing liquidity headroom

Noble Group Ltd. is looking to raise more capital after the embattled commodities trader secured a smaller amount of financing than it was said to be seeking. Its shares sank Friday.

Accompanying Noble Group’s announcement Thursday that it arranged $3 billion in new financing were comments from Chief Executive Officer Yusuf Alireza that some banks had cut credit facilities, narrowing the Hong Kong-based company’s free liquidity. The CEO is attempting to turn the junk-rated trader around, selling assets and pledging inventories to secure debt as it fends off criticisms of its accounting and tackles a rout in commodity prices.

The new facilities comprise a $1 billion unsecured loan supported by 25 banks, and a $2 billion revolving borrowing-base facility, or BBF. That’s $500 million less than it was seeking in March, according to people with knowledge of the matter at the time. While the new loans are a reprieve for Noble Group, it also said that banks in the first quarter cut $1.5 billion in credit lines, equal to more than 10 percent of its total access to liquidity.

“This is very much a sticking plaster, but a good one,” said Robert Southey, London-based founder of Southey Capital Ltd., which trades in illiquid securities, especially distressed debt and private instruments. “The firm isn’t out of the woods yet and nor is the sector, all across the commodity business and bulk shipping we are seeing further signs of distress.”

Shares Fall

Noble Group’s shares fell 4.2 percent to 34.5 Singapore cents at 9:27 a.m. on Friday, taking the drop this week to 15 percent. Its January 2020 notes added 0.8 cent to 72.1 cents on the dollar, according to prices compiled by Bloomberg. The 3 cent advance since May 6 is the biggest gain in two months, with the yield falling 149 basis points to 17 percent. 

Noble Group’s liquidity headroom -- a closely watched barometer -- was $1.9 billion as of March 31. After the financing, that amount would be $700 million to $1 billion on a pro-forma basis, according to chief financial officer Paul Jackaman. The company, which reported a 62 percent drop in first-quarter earnings on Thursday, didn’t disclose the cost and terms of the latest financing.

The company’s credit rating has been cut by Moody’s Investors Service Inc. and S&P Global Ratings amid the rout in raw-materials prices. Fitch Ratings Ltd. has it on negative watch. Alireza said on a conference call that Noble Group has net debt of $1.9 billion maturing over the next 12 months. It’s seeking another $1 billion in additional liquidity this year “by redeploying capital employed from low-return businesses, non-core asset sales, and other capital raising initiatives,” according to a presentation.

‘More Difficult’

Noble Group had sought as much as $2.5 billion in a BBF backed by inventories, the people with knowledge of the matter said in March. The move to secured financing in the BBF is a departure for the company, which has previously mostly used unsecured loans. The $2 billion BBF facility will fund its U.S. business requirements, the trader said in a statement Thursday.

“Clearly, this one was more difficult,” Alireza said on a conference call after the earnings report, referring to the two new facilities.

Turbulent Year

Noble Group is looking to chart a recovery in 2016 after a turbulent year that culminated in its first annual loss in almost two decades and removal from Singapore’s blue-chip Straits Times Index. Asia’s largest commodities trader has also been forced to tackle attacks on the integrity of its accounting from critics including Iceberg Research, a group that doesn’t disclose the identities of its staff. The company’s stock fell 65 percent in 2015 and another 14 percent this year.

The company relies on short-term credit to finance its trading operations, which range from oil and coal to metals. On the unsecured loan, Noble Group had been offering to pay 2.25 percentage points over the London interbank offered rate, people with knowledge of the terms said last month. That compares with the 0.85 percentage-point spread it paid last year for a similar facility.

The company is “taking active measures” to replace and restructure “its previously available bank lines along with securing alternative sources of working capital funding,” according to its results presentation.

Noble Group’s efforts to manage its debt have included the sale of its 49 percent stake in Noble Agri Ltd. for $750 million. Its annual loss last year followed $1.9 billion in writedowns due mainly to a collapse in coal prices but also an impairment on the value of its former agriculture unit.

Cash Flow

The company posted negative cash flow of $392 million in the first quarter compared with a positive $651 million in the second half of 2015, according to its statement. Operating profit was offset by an increase in working capital due to the temporary tightening of bank lines ahead of its refinancing. Revenues declined 32 percent to $11.4 billion in the first quarter while net debt fell $281 million to $3.7 billion.

“Our focus on liquidity, and the short-term constraints also placed upon us by both banks and counterparties, in advance of the refinancing, impacted our operating results in the period,” Alireza said in the statement. “With refinancing now resolved, we expect to re-establish more normal operating conditions as we move further into 2016.”

Margaret Yang, a strategist at CMC Markets in Singapore, said Thursday “the company is still struggling based on its earnings results,” while calling the refinancing news “encouraging.” 

Before it's here, it's on the Bloomberg Terminal. LEARN MORE