SINGAPORE/HONG KONG, May 18 (Reuters) - Singapore-listed Noble Group faces a key financing test over the next few weeks as it negotiates a rollover of credit facilities against the backdrop of a surprise quarterly loss that pummelled market confidence in the commodity trader.
A $2 billion credit facility, secured on its inventories and working capital, is due to be rolled over by the end of June. Noble has already drawn about $620 million cash from the one-year facility.
“We are starting to talk to the core participant banks about a new borrowing base facility which would again feature a cash draw down component,” Noble said in response to a query from Reuters.
Short-term financing is the lifeline of trading houses which operate on thin margins and rely on such funding to support their working capital needs. For Noble, obtaining such financing has become challenging due to its weak operating performance.
“The June refinancing is paramount to the company,” said Andrew DeVries, an analyst at independent financial research firm CreditSights, adding a bank would normally be comfortable loaning $600 million-$700 million on a secured basis because Noble’s trading book and inventory are worth $4.6 billion.
“However, the recent drop in the stock and bonds combined with a Moody’s downgrade is enough to scare a lot of banks away from further Noble business, regardless of collateral value,” said New York-based DeVries.
Noble has lurched from one crisis to another since it hit the spotlight in February 2015 when Iceberg Research accused it of overstating its commodity contracts by billions of dollars as it battled a commodities downturn.
That sparked a share price collapse, writedowns and debt downgrades to junk status, forcing it to sell assets, raise $2 billion and cut jobs. Noble has rejected Iceberg’s claims and has stood by its accounts.
Noble’s shares slumped by as much as 57 percent to the lowest in 15 years and its bonds due 2022 lost half of their value, following an unexpected quarterly profit warning last week.
Some analysts said the company faces a big challenge to turn its operating performance around.
“Noble has talked of its business as a brokerage business capable of delivering profits despite direction of commodity markets,” said Rick Mattila of MUFJ Securities, adding the trading loss raises questions about its ability to “deliver results on a consistent basis”.
Moody’s Investors Service cut Noble’s ratings further into junk territory this week, and Fitch Ratings downgraded its long-term rating on Noble, blaming weak returns.
“The downgrade reflects heightened concern over Noble’s liquidity stemming from its weak operating cash flow and large debt maturities over the next 12 months,” said Gloria Tsuen, senior analyst at Moody’s.
The company’s next challenge is debt of $1.5 billion due next year.
“We are likely to take further negative rating action if Noble does not work toward addressing the 1H18 debt maturity in the next three to six months,” Fitch said. (Reporting by Anshuman Daga and Umesh Desai; Additional reporting by Henning Gloystein; Editing by Muralikumar Anantharaman)