Noble Climbs Even as Moody's Flags $900 Million Funding Gap

  • Liquidity headroom ‘insufficient’ to cover debt, Moody’s says
  • SGX says it’s ‘closely monitoring developments’ at the company

After a savage three-day sell-off, Noble Group Ltd. shares climbed on Tuesday even as Moody’s Investors Service joined S&P Global Ratings in highlighting the embattled commodity trader’s finances, saying that estimated liquidity isn’t sufficient to cover debt due by mid-2018.

Moody’s said that while the liquidity headroom, including cash and unused committed facilities, was $2.4 billion at end of the first quarter, it’s since dropped. “After paying down $650 million in bank debt and the maturity of a revolving credit facility in early May 2017, the headroom would have narrowed to $1.2 billion and become insufficient to cover the $2.1 billion in debt due,” it said in a statement as it cut Noble Group’s rating further into junk territory.

The Hong Kong-based trader is facing mounting difficulties after reporting a quarterly loss of almost $130 million last week and saying it won’t return to profitability until at least 2018-2019. The company has faced years of setbacks, marked by losses, asset sales, and credit-rating downgrades, and has directed new Chairman Paul Brough to review its strategic options. S&P Global Ratings said last week that the Singapore-listed company’s debt-load is unsustainable given its current earnings path.

‘Heightened Concern’

In the late Monday statement, Moody’s cut its rating on Noble Group to Caa1 from B2 and said the outlook remained negative, with no return to profitability expected this year. “The downgrade reflects heightened concern over Noble’s liquidity stemming from its weak operating cash flow and large debt maturities,” said Gloria Tsuen, a Moody’s vice president and analyst.

On Tuesday, the former blue-chip stock closed 12 percent higher at 66 Singapore cents. The climb follows the three-day, 54 percent stock slump that was accompanied by a rout in the company’s bonds.

Noble Group told investors Brough’s first job after taking over from founder Richard Elman will be to undertake the review, which will include exploring “strategic alternatives,” an indication that Noble Group might be open to finding a buyer. “At the moment, all I’m concerned with is conducting the strategic review,” Brough told Bloomberg on Sunday.

During last week’s results presentation, Chief Financial Officer Paul Jackaman said the “liquidity headroom has remained pretty healthy,” noting the sale of $750 million five-year bonds in March. At the end of that month, Noble Group’s net debt to capital was 46 percent, in line with the group’s stated target range of 45 percent to 50 percent, Jackaman said, according to a transcript.

The chances of an opportunistic takeover of Noble Group are high as the company is now at 14 percent of its book value, said Nirgunan Tiruchelvam, a director at Religare Capital Markets Ltd. in Singapore. The company isn’t facing a solvency crisis and has sufficient resources to meet its interest payments in FY18 to FY19, he said in a report dated May 16.

On Tuesday, Singapore Exchange Ltd. said that it’s tracking the company. “SGX is closely monitoring developments at Noble Group,” June Sim, head of listing compliance, Singapore Exchange Regulation, said in an email in response to Bloomberg queries. “However, we do not discuss our dealings with companies nor comment on company specifics.”

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