Photographer: George Frey/Bloomberg

The Billion-Dollar Challenge Facing Noble Group’s New CEOs

  • Trader may sell more assets on top of Energy Solutions, Agri
  • Moody’s says outlook still negative after Yusuf Alireza’s exit

Yusuf Alireza has gone but Noble Group Ltd.’s challenges remain. The commodity trader that announced the chief executive officer’s resignation on Monday as yet more assets were put up for sale, still faces the hurdle of raising about $1 billion to shore up its balance sheet.

The company is sticking with its plan to raise the funds through redeploying capital from low-return businesses, non-core asset sales, and other capital-raising initiatives, an external spokeswoman for the company told Bloomberg News. The proposed sale of Noble Americas Energy Solutions, announced yesterday, is an additional step, she said.

Noble Group has been under intense pressure for more than a year as the commodity rout spurred losses, its credit rating was cut to junk even as it sold its agriculture unit stake to raise funds, and its accounting methods came under attack from critics including Iceberg Research. The efforts to turn the company around now rest with new co-CEOs William Randall, Noble Group’s president, and Jeff Frase, president of Noble Americas, as well as founder and chairman, Richard Elman. Moody’s Investors Service Inc. said the loss of Alireza doesn’t affect its junk rating and highlighted outstanding challenges.

“The change in management does not change the drivers of the negative outlook,” the agency said in a report. While the capital-raising objectives would be credit positive, if the result is lower leverage, improved liquidity, and greater stability, the successful execution of the plan remains uncertain, it said.

For a profile of Noble Group founder Richard Elman, click here.

Noble Group shares sank to the lowest close since January on Monday after Alireza’s resignation amid concern Noble Americas Energy Solutions was a core asset that contributed to profits. NAES was one of the company’s crown jewels, according to IG Asia Pte’s Bernard Aw. The shares closed 5.4 percent higher at 29.5 Singapore cents on Tuesday, paring this year’s loss to 26 percent after a 65 percent slump in 2015.

“The disposal of profitable assets is quite troubling news, especially when Noble is supposedly aiming to focus on its energy business,” Aw said in an e-mail.

Noble Group reported a $1.7 billion loss in 2015, its first in almost two decades, after recording $1.9 billion in writedowns as it revalued coal contracts and sold its remaining stake in Noble Agri to China’s Cofco Corp. below its book value.

For a Gadfly commentary piece on the Energy Solutions business, click here.

Earlier this month, Alireza secured fresh financing totaling $3 billion, while acknowledging that some banks had cut credit facilities by $1.5 billion in the first quarter, narrowing the company’s free liquidity. It had net debt of $1.9 billion maturing over the next 12 months, Alireza said May 12.

“The successful refinancing in May of the company’s bank facilities has alleviated near-term pressure on its liquidity profile for the next six to nine months,” according to the Moody’s report.

At the urging of its banks, Noble Group has been seeking an equity investor to secure a cash injection. The company made no reference to the search in announcing Alireza’s departure. As focus shifts to what else Noble Group still has that could be sold, here’s a look at the businesses that remain.

Noble Group is broadly divided into four business segments: Energy, Gas and Power, Metals and Mining, and Corporate, according to the company’s annual results published in February. The Energy segment includes its oil liquids and energy coal businesses and contributed 76 percent of annual operating income from supply chains in 2015, or $895 million.

The oil liquids arm trades fuel including crude, middle distillates and gasoline around the world and Noble Group is one of the largest gasoline blenders on the U.S. Gulf Coast. The Energy Coal business trades and markets thermal coal, predominantly originating from Indonesia and Australia.

The Gas and Power segment is made up of North Americas Energy Solutions, the gas and power distributor that the company is now looking to sell, and the Gas and Power trading arm, which includes Noble Group’s liquefied natural gas business. The entire unit made $400 million in operating profit last year.

Metals Cutbacks

Mining and Metals made a loss $94 million in 2015. The segment is comprised of the metals unit, which trades non-ferrous metals on behalf of producers and consumers and the Carbon Steel Materials business, which focuses on supplying products to the steel industry encompassing iron ore, chrome, manganese ore, metallurgical coal and metallurgical coke.

Noble Group has already cut back on its metals trading operations to focus on more profitable areas. Five metals traders in the U.S. and U.K. left the company in October as Noble shifted its focus to aluminum and alumina and away from copper and zinc trading.

The Corporate and Others segment incorporates Noble Group’s logistics business as well investments in associates and joint ventures, which include coal miner Yancoal Australia Ltd. and Harbour Energy Ltd. This unit previously included the investment in Noble Agri, which the company sold to Cofco. It made a loss of $24 million in 2015.

“Noble indicates that additional capital raising is needed, so we would not be surprised to see some form of capital injection,” Morningstar Research said in an e-mailed report. “This could also be an overhang and a concern to shareholders this year.”

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