HONG KONG/SINGAPORE (Reuters) - Struggling commodities trader Noble Group has started talks with stakeholders to restructure its debt and secure trade finances in a bid to keep its business running, just weeks after it agreed to sell some assets and flagged a massive loss.
Noble, once a global commodity trader with ambitions to rival the likes of Glencore or Vitol, has shrunk to an Asian-centric company focused largely on coal and freight trading after a crisis-wracked two years that have forced it to slash jobs and sell assets.
Ratings agencies warned this week that the Singapore-listed group, which faces major debt repayments early next year, could have trouble servicing its debt, pushing its shares to their lowest since 1999.
“Noble Group Ltd announces that as a part of its strategic review, it has commenced discussions with various stakeholders regarding potential options to address the Company’s capital structure and liquidity position,” the company said in a statement on Wednesday.
Noble said it would prioritize near-term liquidity, and would aim to continue to operate on a normal basis.
“It sounds somewhat ominous,” said Todd Schubert, head of fixed income research at Bank of Singapore, although he added the move was not a surprise.
The firm announced later on Wednesday it would expand its business in rare earths and metals via two subsidiaries.
Kalon Resources will consolidate Noble’s upstream and downstream metals business, relating to chrome, manganese, tin and tungsten ores while Talaxis will focus on developing a rare earths, cobalt and lithium business to tap the fast-growing demand for these metals for battery-powered vehicles.
Hong Kong-based Noble was plunged into crisis in 2015 when Iceberg Research questioned its accounts. Noble stood by its accounts but a commodities downturn added to the turmoil, triggering a share price collapse, credit downgrades, writedowns and management changes.
Steve Wang, senior credit analyst at CITIC CLSA, said the latest move would give Noble time to address its problems.
“The announcement officially puts the company on the path to address its suffocating debt load situation, which most likely would entail a standstill agreement with its creditors to crystallize the situation - that will help avoid default while giving the company more breathing time.”
Noble’s bonds due in 2020, which have a coupon coming up in January, were indicated a third of a point lower at 37/38 cents on the dollar.
(GRAPHIC: Noble Group debt maturity by year - reut.rs/2zZXhBg)
Noble earlier this month reported a third-quarter loss of $1.17 billion, hit by charges from disposals of some of its businesses.
Over the first nine months of the year, Noble lost around $11 million a day, failing to take advantage of rising commodity prices.
Rating agency Moody’s said this week that Noble’s disposals, including its remaining oil business to competitor Vitol, were “challenging its ability to generate profit and cash flow to service the remaining debt.”
Noble has almost $400 million of medium-term debt notes due March 2018 and $1.14 billion of senior unsecured revolving credit facilities and a term loan due May 2018, according to Fitch Ratings.
If Noble’s liquidity deteriorates to the point where it becomes uncertain if it can repay or refinance that debt, Fitch said it would “consider downgrading the rating to ‘CC’, which indicates default of some kind appears probable.”
Noble’s net debt fell by $112 million to $3.7 billion in the third quarter, but has risen by $833 million this year.
Noble’s market value has plunged to just S$260 million ($192 million) from $6 billion in February 2015.
Its financial woes have resulted in the company’s retreat from most financial commodity markets, including oil, natural gas and even coal, Noble’s traditional strongpoint.
Despite this, Noble retains offtake agreements especially with Indonesian miners, supplying their coal to utilities mainly in Asia.
(GRAPHIC: Noble Group shares & Credit Default Swaps - reut.rs/2zYoBzB)
($1 = 1.3596 Singapore dollars)
Additional reporting by Aradhana Aravindan in Singapore; Writing by Henning Gloystein; Editing by Richard Pullin and David Evans