SINGAPORE (Reuters) - Struggling commodities trader Noble Group agreed to sell its Americas-focused oil trading business to Vitol for about $580 million as part of a debt-cutting strategy, and warned of a big loss for its third quarter.
Monday’s announcement came after Reuters reported late on Friday that Vitol, the world’s largest oil trader, was nearing a deal to buy Singapore-listed Noble’s oil liquids unit.
Noble, founded in 1986 by Richard Elman who took advantage of a commodities bull run to subsequently build it into one of the world’s biggest traders, is shrinking to an Asian-centric company focused on coal trading, LNG and freight.
It is slashing jobs and selling assets to reduce debt and win support from lenders after a crisis-wracked two years. In July it agreed to sell its smaller gas and power business to Mercuria.
“I guess the question is when are they going to basically turn around their business, which is quite key. If they can actually provide more details, what sort of assets they can still sell, that would be great,” said Annisa Lee, Nomura’s head of Asia ex-Japan’s flow credit analysis.
Hong Kong-based Noble was plunged into crisis in February 2015 when Iceberg Research questioned its accounts, and then it was hit by a commodities downturn.
While Noble has stood by its accounts, the upheaval triggered a share price collapse, credit downgrades, a series of writedowns, as well as fund raising and management changes. Noble’s market value has plummeted to less than $400 million from $6 billion in February 2015.
Noble said it would receive gross proceeds of about $1.42 billion from the planned sale of its oil liquids business, while net proceeds would have been about $580 million after repaying $836 million of loans. It said the amount calculated is for “illustrative purposes” and is based on its end-June financials and includes proceeds from its gas and power business.
“It gives the company some positive momentum going into a liability management exercise and it likely raises recovery realizations under a restructuring scenario modestly,” said Todd Schubert, fixed income analyst at Bank of Singapore.
In July, Noble announced an up to $1 billion disposal plan for assets outside North America over the next two years as Chairman Paul Brough, a restructuring specialist appointed in May, sought to tackle Noble’s more than $3 billion of debt.
“Conservative liquidity management and constraints placed on the group’s access to trade finance lines led to disruption costs and prevented the group from taking advantage of profitable trading opportunities,” the company said on Monday.
Its stock fell 7 percent on Monday and was down 5.6 percent on Tuesday, extending losses to about 80 percent this year.
In a one-line statement, Vitol U.S. Holding Co confirmed it had agreed to acquire Noble Americas Corp subject to certain conditions and referred to Noble’s statement on the deal.
Noble bonds due 2020 were higher by two points at 39/41 cents on the dollar. As recently as April, the 2020s were trading around 97 cents on the dollar.
Noble warned of a total net loss of $1.1 billion to $1.25 billion in the three months ending September, citing non-cash losses and underlying trading results. This follows a $1.75 billion net loss for April-June.
Noble has been locked in negotiations with its lenders to support a $2 billion credit facility, secured on its inventories and working capital.
“Whilst no assurance can be given as to the outcome of these discussions, the group believes that these are open and constructive, and are moving forward,” it said.
In August, S&P and Moody’s cut their credit ratings on Noble, citing high default risks.
“We believe default risk remain for Noble within the next six months even though the sale of both the North American gas and power and its global oil liquids businesses can raise cash for debt repayment,” S&P said in a report on Monday. Noble did not respond to a request for comment on S&P’s report.
Noble is a big player in the global physical oil market, trading crude and refined products. But its operations shrank this year due to higher prices and liquidity constraints. The company has blending and wholesale capabilities in North America and the Caribbean, alongside long-term storage leases globally.
A purchase of Noble’s oil liquids business will reinforce Vitol’s position as a leading oil trader.
Reporting by Anshuman Daga in SINGAPORE; Additional reporting by Umesh Desai in HONG KONG; Editing by Stephen Coates and Muralikumar Anantharaman