Noble Group to Raise $500 Million From Deal as Profit Slumps

  • Several transactions are under discussion, CEO Alireza says
  • CFO Van der Zalm steps down for health reasons, company says

Noble Group Ltd., the commodity trader battling tumbling raw-material prices and criticism of its accounting, plans to raise at least $500 million through asset disposals or from a strategic investor.

Several transactions are under discussion, Chief Executive Officer Yusuf Alireza said after the company announced an 84 percent slump in third-quarter profit and the departure of its chief financial officer. He didn’t offer a timetable, although Noble’s next critical financial commitment is to refinance several credit lines that mature in May. The fundraising plan is linked to Noble retaining its investment-grade status.

Commodity trading houses including Noble and Glencore Plc are seeking to bolster investor confidence in their businesses as they navigate slumping prices of energy, metals and crops, and try to revive battered share prices. The challenge for Noble is magnified as it wards off allegations that its accounting practices lack transparency. Alireza said on Thursday that Noble generated positive cash flow for the first time this year. While market conditions remain difficult, he said a turnaround in sugar prices may bolster the company’s performance into 2016.

Tough Environment

“While the operating environment has been tough, and even more unpredictable than usual, it is this very change and uncertainty that has enabled us to reposition the business,” Alireza said in a statement. “We are spending an increasing amount of time ensuring that we run our existing businesses as profitably as possible.”

Net income fell to $24.7 million in the three months to Sept. 30 from $153.9 million a year earlier as sales dropped 20 percent to $18.7 billion, Noble said. Tonnages handled climbed to a record, margins rose and cash flow from operations turned positive.

CFO Robert van der Zalm stepped down for health-related reasons, according to a separate statement on Thursday. He’ll take on the London-based role of vice chairman of finance and will be replaced on an acting basis by Asia CFO Paul Jackaman.

Worst Performer

Alireza has parried attacks this year from a group called Iceberg Research and short-seller Muddy Waters LLC that the company’s accounts are not to be fully trusted. In August, Noble published a report by PricewaterhouseCoopers LLP saying its accounting complied with international rules. Noble also organized an investor meeting at which it set a target to raise operating profit to more than $2 billion in three to five years.

While the Singapore-listed stock remains this year’s worst performer on the Straits Times Index, it rebounded in October. The shares lost 2.9 percent to 50 Singapore cents on Thursday, before the results statement. Noble rose 22 percent last month, the most since May 2008, as the company got fresh funding. The stock is down 56 percent in 2015.

The loss at its mining and metals unit widened to $72.1 million in the quarter from $65.2 million a year earlier, according to the company. Losses from joint ventures and associates, notably Noble Agri Ltd., climbed to $65.7 million from $20.2 million.

Positive Cash

“We achieved the group’s target of generating positive cash flow from operations early, generating $318 million” in the quarter, it said. That came as profit from Noble’s energy business rose more than fivefold to $143.4 million. Noble’s inability to generate positive cash flow has been a key criticism of the company by Iceberg. 

It was important Noble showed it could “put the issue of cash flow to bed,” Alireza said on a conference call. When analysts on the call questioned the company’s ability to continue to generate positive cash flow, the CEO said it will depend largely on how much it spends on physical commodity inventories and contracts with producers.

Inventories, meaning oil, metals and other physical commodities that the company holds, fell 28 percent to $1.75 billion from the previous quarter.

Noble said the level of fair value gains for contracts longer than four years, also a key focus of critics, rose to $2.12 billion, an increase of $102 million from the previous quarter. The value of total net fair gains on commodity contracts and derivatives climbed by $423 million to $4.5 billion from a quarter earlier, the company said, attributing the gain to a net $508 million increase in the value of oil futures contracts as spot prices fell.

Accounting Rules

Iceberg, a previously unknown group whose members are anonymous, has said Noble uses aggressive interpretations of accounting rules to inflate the value of assets and contracts. The company repeatedly denied the allegations, and Alireza said last month he should have been more forceful in pushing the trader to boost transparency.

Noble Group asked deal maker Michael Klein back in August to review options for the trader, including selling a stake in the company. Klein, a former investment banking chairman at Citigroup Inc. who founded his own M&A firm, brokered the talks between the bosses of Glencore and Xstrata Plc that led to the takeover of the mining group by the commodity trader in 2013. 

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