SINGAPORE/HONG KONG (Reuters) - Noble Group's NOBG.SI stocks and bonds plunged for a second straight day on Friday and have now lost half their value this week, as an unexpected quarterly loss stokes concerns about the commodity trader's financial strength.
Noble has struggled to repair investor confidence after setbacks in the past two years that included a questioning of its accounts by Iceberg Research and a commodities downturn that triggered a share price collapse, credit rating downgrades and a series of writedowns, asset sales and fund raising.
“The trading loss raises questions about the ability of remaining businesses to deliver results on a consistent basis,” said Rick Mattila of MUFG Securities.
Noble declined to comment on market worries. In its results call on Thursday, it defended its ability to pay debt and manage liquidity.
“The group continues to be in discussions with its banks to ensure that the group’s facilities provide the liquidity required to support the structure of the group’s businesses going forward,” Noble CFO Paul Jackaman said on Thursday.
He said that for the remainder of 2017, Noble was still working on its key initiatives of improving profitability, reducing costs and maintaining a solid balance sheet.
The company’s net debt to capital stood at 46 percent as of March 31, in line with the group’s stated target of 45 to 50 percent.
Analysts remained worried about the performance of Noble’s existing businesses and its debt position.
“Noble Group posted a loss in its core business and we question if the remaining business lines support the company’s $3.3 billion of net debt now that the lucrative U.S. gas and power business has been sold and oil market volatility has died down,” Andy DeVries, an analyst at CreditSights, said in a report.
STOCKS AND BONDS SELL-OFF
The slide in Noble’s shares began after Noble reported a surprise quarterly loss of $129.3 million for January-March. Noble’s market value has shrunk to a low of about $576 million from $6 billion in February 2015.
“The decline in working capital facilities and the drop in payables were the main reason for the negative operating cash flows and reflects concerns over its liquidity and operations,” said Chris Park, an analyst at Moody’s Investors Service.
The shares fell 30 percent on Friday to a low of S$0.61, their weakest level since early 2002, after sliding as much as 33 percent a day ago in its biggest decline. More than 100 million shares traded on Friday, seven times the average daily volume traded over the past 30 days.
Just last month, Noble undertook a 10-for-1 share consolidation to avoid penny stock status.
Noble's bond prices also took a hit. Noble bonds due 2022 XS157733877=TE fell 24 points on Friday to a price of 44/47 cents on the dollar. The prices have fallen about 52 points this week.
“There is risk that losses may continue due to the inability to effectively hedge the price risk in its coal business, and still negative operating cashflows,” DBS analyst Mervin Song said in a report.
The cost of insuring Noble debt against default rose. Noble's 5-year credit default swaps NOBG5YUSAC=R has jumped 240 basis points this week to around 993 basis points, meaning it would cost $993,000 per year for five years to insure $10 million in bonds. That's about $240,000 more than the cost before the profit warning.
On Thursday, Noble founder, Richard Elman, who set up the group with $100,000 three decades ago, stepped down as executive chairman to become chairman emeritus. In the last two years, Elman has steered Noble to return to its roots as an asset-light trading house but the group has struggled.
Noble, whose top shareholders include Elman and sovereign wealth fund China Investment Corp, is now mainly focused on oil liquids and energy coal businesses.
Graphic on Noble Group's stock slide: tmsnrt.rs/2pFbfj1
Graphic on Noble Group's bond collapse: reut.rs/2q89uxZ
Reporting by Anshuman Daga in SINGAPORE and Umesh Desai in HONG KONG; Writing by Miyoung Kim; Editing by Edwina Gibbs and Randy Fabi
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