Commodities

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Yusuf Alireza, the former Goldman Sachs partner who's leaving the post of chief executive officer at commodity trader Noble Group, managed to keep his cool over the past year.

Even as detractors attacked the company, he insisted that it was selling the right assets to become nimbler and more profitable. He sold the company's agricultural unit, one of its biggest drags, freeing up cash and balance sheet resources to expand into more profitable areas, such as energy trading -- all while facing the worst stock rout in the company's history.

Still, there are assets and there are assets. One of the first sales by Noble under its new bosses will be one he'd previously rejected. Noble Americas Energy Solutions, an electricity-trading unit bought from the commodity-trading venture between Sempra Energy and RBS in 2010, will be sold "to generate both significant cash proceeds and profits to substantially enhance the balance sheet,'' the company said.

The unit delivered its second-highest operating income in the first quarter although that declined from a year earlier, Alireza told an investor call earlier this month. Asked if he'd consider the business as one of the non-core assets he was happy to sell, he answered: "Definitely not.''

Bread Winner
The unit being sold by Noble Group is part of a segment that's one of its biggest earners
Source: Company filings
* Fourth quarter 2015 is derived from full- year results as Noble doesn't break down financials for the last quarter.

What can Noble expect to raise from selling this unit? It doesn't break out numbers for the business but paid $317 million in cash and assumed $371 million in debt to buy it in 2010. About half of that equity value -- $175 million -- was recorded as goodwill as of Dec. 31. Next to Noble's net assets of $3.41 billion and net debt of $3.69 billion, the sale is unlikely to make the difference between life and death.

Cash Cow
Gas & Power, which includes Noble Americas Energy Solutions, is one of the company's most profitable units
Source: Company filings
* First quarter numbers

A sense of the electricity-trading business's performance can be gained by looking at the broader Gas & Power unit of which it's a part. While Noble as a whole reported an Ebit margin of 2.2 percent in the first quarter, Gas & Power's margins dropped to 45 percent from 50 percent a year earlier. That looks more like a cash cow than an albatross.

Noble's 6 3/4 percent 2020 bonds are trading at less than 76 cents on the dollar, implying a yield which, despite falling in recent months, is still a painful 15.7 percent. The challenge for a company in Noble's situation is that it needs to raise cash for the short term without destroying the long-term business. Alireza appears to have thought that the North American electricity-trading unit was one of the company's crown jewels. Bondholders will be glad for the extra cash from this sale. Equity investors will have to hope he was wrong.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Christopher Langner in Singapore at clangner@bloomberg.net
David Fickling in Sydney at dfickling@bloomberg.net