Noble Group Explains Why Gas Sale Earned Less Than Anticipated

Updated on
  • SGX queries trader on sale of gas and power unit to Mercuria
  • Noble Group points to drop in working capital, escrow figures

Noble Group Ltd., the commodity trader struggling to avoid a default, has set out why it received millions of dollars less from the sale of its North American gas and power unit than the company had previously indicated, responding to queries from the Singapore exchange.

The figures differed because the unit’s working capital shrank, cutting the amount that needed to be paid by Mercuria Energy Group Ltd., Noble Group said in a statement on Monday. The illustrative sum given earlier by Noble Group also didn’t take into account funds that were placed in escrow, it said.

The Hong Kong-based trader is under intense scrutiny from investors and regulators as it pursues a shrink-to-survive strategy, selling off businesses to pay down debt. As part of that, Mercuria paid Noble Group for $102 million for the gas and power unit and deposited a further $83 million into an escrow account. Noble Group had estimated it would be paid $261 million for the business based on its end-of-June accounts, and the Singapore Exchange had asked the company to reconcile the difference between the figures.

The difference between the closing amount and the illustrative total consideration was a result of “a decrease in North American Gas and Power’s working capital between 31 March 2017, 30 June 2017 and 30 September 2017,” the company said. In addition, the illustrative total consideration didn’t take into account the funds placed into escrow, it said.

Noble Group shares fell 2.5 percent to close at 38.5 Singapore cents after the statement, which came before the start of trade. The company’s bonds due 2022 were down 1.4 cents to 38.98 cents on the dollar, set for the biggest drop since Aug. 24, according to Bloomberg-compiled prices. The bonds maturing 2020 fell 1.1 cents on the dollar to 39 cents.

Sale Figure

The lower sale figure is a blow for Noble Group as it bids for survival more than two years into a crisis marked by accounting criticisms, a plunge in its securities and rating downgrades. The company had already flagged a potential $133 million loss on the unit’s disposal based on its estimated sale price of $261 million, compared with the book value of $394 million at the end of June.

According to a circular to shareholders in August, $40 million of the total sale price would be deposited into an escrow account when the deal completed, unless the two companies disagreed on the valuation. In that case, Mercuria would deposit a higher amount in escrow to make up for the difference.

Noble Group is still pressing on with the sale of its oil business, with potential buyers pared down to Vitol Group and Mercuria, according to people familiar with the matter. Separately, people have said that Noble Group has struck a deal with Mercuria to tap about $400 million of financing for its Asian business.

The lower sum for the gas unit “may not be as bad as it looks since some of it was due to a conversion of working capital,” Steve Wang, senior credit analyst at Citic CLSA Securities, said in a note. “This news is certainly balanced out with the encouraging report that Noble is receiving some additional trade financing through a deal with Mercuria. The downside being that Mercuria may be squeezing Noble hard on the price for its oil liquids business.”

— With assistance by Jake Lloyd-Smith, Ranjeetha Pakiam, and Denise Wee

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