Noble Group Lifeline Hinges on $2 Billion Facility Support

Updated on
  • Vote of confidence if banks comfortable lending: CreditSights
  • Noble approached lenders to refinance with $2 billion facility

Noble Group Ltd.’s stock fell while its bonds rose Thursday after people familiar with the matter said the embattled commodity trader has approached lenders to replace a credit facility with a $2 billion borrowing base facility. Now investor focus shifts to bank support for that lifeline.

Mitsubishi UFJ Financial Group Inc. is said to be arranging the 364-day facility, the people said, asking not to be identified because they aren’t authorized to speak publicly. Noble Chief Financial Officer Paul Jackaman said last week the company is in talks with lenders over renewing a secured borrowing facility that’s been extended to the end of June. The latest move is to refinance that facility, according to Glenn Ko, head of Asia desk trading strategy at HSBC Holdings Plc in Hong Kong.

Noble’s ability to access fresh funding from lenders, and the terms that come with any borrowing, may prove pivotal to efforts by executives led by new Chairman Paul Brough to restore the company’s fortunes. In recent years, the Hong Kong-based trader has endured losses, credit-rating downgrades and a share-price collapse. After reporting another loss last week, analysts’ concerns have focused on its liquidity.

“The company has always been highlighting strong banking relationships in the past and even during the tough times they managed to get bank funding,” said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management in Singapore. “This time round it could be more uncertain given that quite a number of things are happening at the same time including first-quarter losses, new management, timing of those events.”

Read a story on how Noble’s turmoil is prompting queries on its disclosure to bond buyers

A media representative for Noble Group wasn’t able to immediately comment when asked about the facility pricing. MUFG said it couldn’t comment because it doesn’t usually respond to inquiries about individual clients.

Noble’s stock dropped 2.2 percent in Singapore, extending declines for the month to 52 percent after the firm reported last week a net loss of $129 million in the first quarter. Its bonds due in 2022 rose 0.9 cent to about 52.8 cents, compared with 98.2 cents at the start of the month.

Brough, a British-born former KPMG LLP executive, was appointed chairman of Noble last week, taking over from founder Richard Elman. Its credit rating was cut further into junk territory this week.

“If the banks are comfortable loaning against the trading book it would be a huge vote of confidence across the whole capital structure,” said Andy DeVries, analyst at CreditSights Inc. “I assume the banks not only have access to more details on the trading book positions than the public does but the banks have experts that specialize in these positions too.”

Rating Downgrades

Noble is offering investors 185 basis points over the London interbank offered rate on an $800 million uncommitted tranche and 195 basis points over Libor on the remaining $1.2 billion committed tranche, the people said. The pricing is in line with last year’s deal, they said. The terms may change given recent downgrades by rating firms, according to the people.

Fitch Ratings cut its credit rating on Noble deeper into junk territory on Tuesday, saying it will need to source external financing in the first half of next year. That came after Moody’s Investors Service took a similar step.

The fact that there hasn’t been a spike in pricing on the facility is positive, said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp. “However, the loan isn’t completed and the market will look to see to what extent terms are modified.”

— With assistance by Jacqueline Poh, Sandra Tsui, Jasmine Ng, and Jake Lloyd-Smith

(Updates stock and bond prices in sixth paragraph.)
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