Noble Group Plunges on Profit Warning as Coupon Payment in FocusBy , , and
Trader faces significant debt maturities over the next year
Shares slump 49% in Singapore as bonds trade near record low
Noble Group Ltd. plummeted in Singapore after the embattled commodity trader warned of a quarterly loss of as much as $1.8 billion and announced more asset sales, with S&P Global Ratings saying the disposals may not be enough and investors zeroing in on a bond coupon due on Saturday.
The shares sank as much as 49 percent, while the bonds due in 2020 held near a record low, as the Hong Kong-based company abandoned its ambitions in global commodities trading with the sale of its gas-and-power unit, and planned disposal of its oil-liquids business. The sale proceeds may not be sufficient to mitigate underlying losses and offset less favorable access to credit lines, according to S&P’s Danny Huang, director of corporate ratings.
Noble Group has been in crisis for more than two years, marked by vast losses, mounting concern it will default and accusations it inflated the value of some contracts, which it’s denied. In an effort to raise funds, placate investors and pay down debt, the company has been selling businesses. With billions of dollars of borrowing outstanding, JPMorgan Chase & Co. said in a note that a coupon payment due July 29 on its 2020 bonds is now a key event to track.
“Noble is becoming a marketing office, and nothing more,” said Jean-Francois Lambert, a consultant and former head of global commodity trade finance at HSBC Holdings Plc, commenting before the S&P statement and the share plunge. “They have some debt to repay in the meantime. The question is how are they going to be able to do this.”
Noble Group shares sank as much 28 Singapore cents to 29.5 Singapore cents, and traded at 39 cents at 1:39 p.m., taking their declines this year to 77 percent. The 2020 bonds traded at 32.5 cents on the dollar after sinking to a record 32 cents on Wednesday, according to prices compiled by Bloomberg.
After the close of trade on Wednesday, Noble Group said that it expects a loss of between $1.7 billion and $1.8 billion for the quarter to June, which follows a smaller loss in the first quarter. The company also announced the sale of the gas-and-power unit to to rival Mercuria Energy Group for $248 million.
While S&P kept Noble’s CCC+ rating unchanged pending more information about cash flow and liquidity headroom, it flagged concerns. There’s “continuously deteriorating profitability and liquidity constraints,” the assessor said in a statement on Thursday. “Management expects the company’s access to liquidity, working capital, and trade finance is likely to remain restricted.”
Noble Group still faces significant maturities in coming months in the form of $380 million of senior notes due March 2018 and a $1.1 billion revolving credit facility and term loan due May 2018, according to a report from Fitch Ratings Ltd. last month. On Thursday, JPMorgan highlighted the payment due July 29.
The sale of the North American gas-and-power businesses implies banks and counter-party support “could be getting limited” and because of that, the company is raising cash for liquidity, JPMorgan said. The coupon that’s due is a “key near-term event to monitor, it said.
Before the profit warning, Jefferies LLC said it expected the weekend coupon payment to made as its base case is that Noble Group does have enough cash, according to recent note. Both Noble Group’s lenders and the company would not like to accelerate problems by not making it, Jefferies said.
Noble Group is expected to offer unsecured bondholders new secured bonds in exchange for a haircut of as much as 50 percent on the principal, according to CreditSights Inc. The trader is “out of large assets to sell” and more monetizations at similar terms to the Mercuria sale are unlikely, analyst Andy DeVries said in a note.
The loss in the June quarter largely stems from revaluing long-term coal contracts, whose valuation had been criticized by Iceberg Research, a group that first raised concerns more than two years ago. Excluding non-cash exceptionals, the adjusted net loss for the quarter will be $450 million to $500 million, while adjusted operating losses will be $250 million to $300 million.
“The offloading of its overseas units to focus on the Asian business could go some distance to improving the liquidity,” Jingyi Pan, a Singapore-based market strategist at IG Asia Pte, said by email. “However, in the nearer term, its ability to handle debt obligations will be key.”
— With assistance by David Yong, Javier Blas, and Jake Ulick