Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

At 'bare bones' Noble Group, staff exits and debt pose more risks

Published 07/27/2017, 06:49 AM
Updated 07/27/2017, 07:00 AM
© Reuters. FILE PHOTO: Noble Resources signage is pictured at office in Singapore

© Reuters. FILE PHOTO: Noble Resources signage is pictured at office in Singapore

By Anshuman Daga and Henning Gloystein

SINGAPORE (Reuters) - Noble Group (SI:NOBG) is slimming down drastically to its core Asian coal-trading business, but that may not be enough to revive its fortunes due to a staff exodus, shrunken balance sheet and debts of more than $3 billion, analysts and industry sources say.

Once Asia's largest commodities trading house, Singapore-listed Noble is a shadow of what it was during the boom years, when it snapped up assets from sugar mills to coal mines and expanded globally to rival Glencore (L:GLEN) and Trafigura.

In a dramatic overhaul announced on Wednesday, it sold its U.S. gas and power business to a Swiss-based peer, Mercuria Energy Group, for $248 million, started a process to sell its oils liquids unit and announced plans for up to $1 billion of disposals over the next two years.

It also flagged a $1.3 billion writedown, leading to a quarterly loss of up to $1.8 billion on a "more conservative balance sheet valuation".

"You are essentially getting back to a contract book that's worth $1.2 billion and meanwhile you have debt at $3.3 billion. So that's clearly not sustainable," said Andy DeVries, New York-based analyst at CreditSights, an independent research firm.

"You can't asset sale your way out of this. You can't grow the earnings out of this. You need a change in the capital structure. It's essential."

Sources close to the company and investors said the business remains hemmed in by financing constraints - a major issue for trading houses - and has lost many traders, analysts and managers over the past months, despite cash offers to keep key staff until December.

Recruiters cite high-profile departures, including veterans in Noble's U.S. aluminium business.

Other exits include the company's head of strategists in Singapore, who left in recent weeks - according to colleagues, to open a bed and breakfast in his native Iceland, though he confirmed only his departure. Its head of forex and rates left after an eight-year stint and its Asia treasury chief quit.

Noble's chief iron ore analyst, Gueorgui Pirinski, joined rival Rio Tinto (AX:RIO) in May.

Noble declined to comment for this story.

Commodity trading is a "people business" and relies heavily on the contacts and expertise of its traders and analysts.

"In theory, Noble had a very large oil trading business that was worth a lot of money," said CreditSights' DeVries. "In reality, they lost most of the key traders in that business. It is very bare bones and they are selling the remaining bones."

RED OCTOBER

Noble was thrust into the spotlight in February 2015 when previously obscure Iceberg Research accused it of overstating its assets by billions of dollars, which Noble rejected. In 2015, consultants PricewaterhouseCoopers found Noble had complied with international accounting rules.

But as far back as January 2016, Noble's founder and then chairman, Richard Elman, told Reuters in an interview that the firm needed "to go back to being modest and cautious and economical".

After Wednesday, the company's latest overhaul, its shares slid by nearly 49 percent, valuing the group at less than $400 million - far below its $10 billion peak. The stock has slumped 75 percent this year.

A representative of Iceberg told Reuters: "Noble is facing the perfect storm for a trader - prohibitive cost of funding, both counterparties and banks are cutting their exposure, many traders have left. It is simply not possible to get out of this hole."

Noble's key 2020 bond also fell, trading down half a point at 32.5/36.25 cents on the dollar. The latest bond, issued in March and due in 2022 < XS157733877=TE>, has slumped to 32.9/35.55 - less than a third of its value in little over 4 months.

S&P Global Ratings in May cut Noble's corporate credit ratings to junk status, warning of a default.

Analysts expect Noble's latest plan to mark the prelude to talks with bondholders.

"On one hand the asset sales can arrest an immediate liquidity crunch, but on the other hand it means that the large chunk of the core business will be gone," said Chris Park, an analyst at Moody's.

"The question is if it can service its remaining debt even if it can reduce the short term liquidity issues."

Last month, Noble extended a key debt deadline to Oct. 20, providing a lifeline to the company, and it said on Wednesday it was in still talking with banks.

Previously a large player in metals, agriculture, oil, natural gas, iron ore and coal, market participants say Noble has for months been largely reduced to trading physical coal supply contracts it has with customers, including deals to ship thermal coal from Indonesia's Kalimantan to clients in North Asia.

While other merchants, including its bigger European rival Glencore, have recovered from the 2015/2016 commodities slump, Noble's decline has been steep. But it woes do not appear to pose a wider risk of contagion to the sector.

"They are virtually absent from physical oil or liquefied natural gas. The capital requirements for them are just too high, and the counterparty risk to engage with them is too high for us," said one energy trader who used to regularly deal with Noble.

© Reuters. FILE PHOTO: Noble Resources signage is pictured at office in Singapore

"It's sad to see. The market lost a major participant, and I know guys there. It's not an easy situation for them to be in."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.