Photographer: Luke Sharrett/Bloomberg

Noble Group Reports Its First Annual Loss in Almost Two Decades

  • CEO says aims to refinance credit facility `long before' May
  • Company lowers net debt to $2.26 billion; reduces fair values

Noble Group Ltd. posted the first annual loss in almost two decades after Asia’s largest commodity trader took a $1.9 billion writedown, and said it aims to re-finance debt before a May deadline.

The net loss was $1.7 billion last year compared with profit of $132 million in 2014, Hong Kong-based Noble Group said on Thursday, two days after it warned of impairments. The company, which needs to renew a $1.2 billion revolving credit facility that matures in May, has approved term sheets with a number banks on new arrangements, according to Chief Executive Officer Yusuf Alireza.

The full-year loss follows a turbulent 12 months for Noble Group that saw its shares collapse and debt rating cut to junk by two agencies. The trader has been hammered by the commodities plunge and criticisms of its accounting -- all denied by the Singapore-listed company -- that included the valuations of its long-term contracts. It’s set to complete the sale of its stake in Noble Agri Ltd. to Cofco Corp. for $750 million next month.

“Our re-positioning initiatives are largely finished,” Chief Executive Officer Yusuf Alireza said in a statement. “The imminent receipt of $750 million from the agri sale adds to our flexibility and, with the expected successful completion of the re-financing of our revolver, we look forward to generating the returns that we know the ‘New Noble’ is fully capable of.”

The shares fell 1.5 percent to 33.5 Singapore cents on Thursday before the earnings statement. The stock, which was the worst performer on the Straits Times Index in 2015, lost 68 percent over the past 12 months, leaving the company with a market value of S$2.19 billion ($1.56 billion).

Term Sheets

Alireza did not rule out the possibility of raising additional capital from an outside investor or by selling equity. He wouldn’t give specific details of the company’s plans but said the renewal of the revolving credit facility was not dependent on raising equity.

“The revolver will be executed and it is not in any way contingent on an equity transaction,” Alireza said. He wouldn’t say how much interest Noble Group expects to pay on renewal of the credit facility.

Adjusted net profit, excluding non-cash losses and other items, was $244 million for the year compared with $586 million in 2014. Tonnages handled in core businesses in 2015 climbed 26 percent to 271 million metric tons.

The company said it had a record $1.95 billion cash on hand at the end of the year and a positive net cash flow from operations of $651 million in the second half. The trader lowered its adjusted net debt, reducing obligations from the end of the third quarter by $248 million to $2.26 billion at year-end.

“We are encouraged that Noble recorded its second successive quarter of cash flow-positive results,” said Nirgunan Tiruchelvam, an analyst at Religare Capital Markets in Singapore, who rates the company as a buy. “The drop in revenue is reflective of lower commodity prices.”

Coal Slump

Weighing on the results was a $558 million negative swing in Noble’s metals and mining business. The unit posted a loss of $229 million in 2015 compared with a profit of $282 million in the previous year, and was hit by the continued collapse in physical premium prices as well as weak demand. Noble expects the business to return to profitability in 2016, Alireza said on the conference call.

Noble Group blamed the plunge in coal for the $1.2 billion charges it booked, on top of an impairment and loss of $724 million from the agri-unit sale, saying prices may remain at lower levels for an extended period. Noble Group holds 13.2 percent of coal miner Yancoal Australia Ltd., an asset that’s drawn scrutiny from the anonymous Iceberg Research, which has said it’s overvalued.

The writedown included about $1.06 billion of exceptional non-cash losses mainly due to the company lowering its coal price assumption, reducing the value of long-term contracts. It also had $178 million non-cash losses from supply-chain assets including impairments on Yancoal. The charge from the sale of Noble Agri included a $531 impairment and Noble Group’s $193 million non-cash share of the unit’s loss in the year.

Noble Group’s new thermal coal price assumption of $55 a ton will underlie the value of its contracts for 2020, compared with its previous estimate of $85 for 2019, it said on Tuesday. Thermal coal at the Newcastle port in Australia sank to $47.37 in January, the lowest since 2006, according to Globalcoal.

The value the trader attributes to long-term contracts has come under particular scrutiny from its critics. The net fair value of these assets dropped to $3.2 billion as of the end of December, from $4.1 billion at end-June. The fair value of the longest-term, or level 3, contracts fell by almost half to $615 million, as Noble Group lowered its price assumptions.

Standard & Poor’s said Tuesday that the losses could complicate the trader’s refinancing abilities and flagged the possibility that Noble Group could breach financial covenants even as it said that’s a low probability. Moody’s Investors Service said the same day that the company’s liquidity position would remain constrained until it refinances.

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