Noble Group's Wild Trading Day Demands `High Risk Appetite'

  • Trader remains in talks with potential strategic investors
  • Shares plunge 27 percent, then recover as bond prices gain

Noble Group Says Still in Talks With Possible Partners

Noble Group Ltd.’s stock endured a roller-coaster ride as investors weighed concerns about the commodity trader’s ability to sustain its business and meet debt obligations with comments from the company that it remains in talks with potential strategic partners. The bonds climbed.

Shares plunged 27 percent to the lowest since 2000 as trading resumed in Singapore after a halt, then reversed to jump as much as 15 percent before ending lower. At its nadir, the switchback ride cut the Hong Kong-based company’s market value to below S$500 million ($360 million) from S$2.2 billion at the end of 2016.

Once Asia’s biggest commodity trader, Noble Group’s crisis deepened after S&P Global Ratings flagged on Monday a risk of default, triggering the rout in its shares. In a statement before Wednesday’s open, Noble Group said talks with possible partners were ongoing, without identifying any companies. It also said it’s reviewing its options with advice from Morgan Stanley and Moelis & Co., and continuing to evaluate further asset sales and cost reductions.

“Noble has been seeing sustained selling pressure of late, highlighting the lack of confidence in the company in turning around their situation,” Jingyi Pan, a Singapore-based market strategist for IG Asia Pte, said by email. For those investors “that remain, they certainly are the ones with high risk appetite.”

The stock sank as much as 11.5 Singapore cents to 30.5 cents in the opening minutes, then recovered as the day progressed before closing at 38.5 cents, down 8.3 percent. The swings came as at least four local brokerages placed some restrictions on trading in the shares. Noble Group’s dollar bonds due in 2022 rose 5.4 cents on the dollar to 42.6 cents.

‘Incredibly Difficult’

The co-chief executive officers of Noble Group told staff the company is facing an “incredibly difficult environment,” and the trader needs to continue to be conservative and manage for liquidity, according to a memo seen by Bloomberg on Wednesday. Noble Group’s conversations with core banks are continuing, and the impacts of the S&P downgrade would be minimal as the company is already operating within a “constrained environment,” Jeff Frase and Will Randall said.

Noble Group has endured two turbulent years marked by losses, asset sales, and accusations of improper accounting it has denied. The trigger for the latest spiral downward was a profit warning for the first quarter on May 9. Following the announcement of the loss, S&P, Moody’s Investors Service and Fitch Ratings Ltd. all cut the company’s ratings and flagged concern about its funding.

Noble Group’s crisis centers on its liquidity. As the company tries to find an investor, it’s holding talks with banks on renewing a $2 billion facility that underpins its oil business, and is due to expire next month. Noble Group is likely to reduce the size of that facility as at least two banks plan to withdraw, according to a person familiar with the matter, asking not to be identified discussing internal affairs.

In another blow, Reuters reported on Monday that Sinochem Group is no longer pursuing an investment. In its statement, Noble Group referred to that report. The article “indicated the reasons for any transaction not proceeding were commercial concerns about Noble,” it said. “Noble is not aware of any reason that would confirm what the article reports.” Nobody answered two calls to Sinochem’s press office, or responded to an email seeking comment.

Brokers’ Curbs

In Singapore, KGI removed the company from a list of local stocks eligible for margin financing from Wednesday, while Phillip Securities Pte, Lim & Tan Securities Pte and UOB Kay Hian Pte now require cash upfront for purchase amounts exceeding certain limits.

S&P said there’s potential the company will face a nonpayment of its debt over the next 12 months, adding that its capital structure isn’t sustainable. In its assessment, Moody’s highlighted a $900 million gap between estimated liquidity headroom and debt due by the middle of next year.

Noble Group’s new chairman, Paul Brough, has been tasked with leading a review after he was named to the post earlier this month, replacing founder Richard Elman. The company’s existing shareholders include China Investment Corp., the nation’s sovereign wealth fund.

“The story for Noble continues to remain fundamentally weak,” Nicholas Teo, a trading strategist at KGI Securities Pte, said in a note. “Liquidity concerns will continue to plague them as they scramble to meet upcoming debt obligations.”

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