Noble: Changes in working capital, escrow led to lower amount received in sale of unit

Changes in working capital and amounts placed in escrow led commodity trader Noble Group to receive less from the sale of its gas and power unit than had earlier been indicated, the company said on Monday in response to queries from the Singapore Exchange (SGX).

Noble Group said on Oct 2 that it had sold Noble Americas Gas & Power Corp (NAGP) to Mercuria Energy America Inc (MEC) and received US$102 million. On Aug 31, Noble told its shareholders that it would have received US$261 million in total consideration if the deal had been struck on June 30, 2017.

SGX asked Noble to explain the discrepancy. Noble explained that MEC was required to pay NAGP's net working capital less US$65 million and indebtedness, but could place some amounts in escrow.

The difference in the actual and indicated amounts came partly because NAGP's working capital had fallen between March and June 2017 and September 2017 as the unit settled customer invoices, lowering trade accounts receivable and converting working capital into cash. Trade accounts receivables for NAGP were about US$94 million as at March 31, 2017, and US$71 million six months later.

MEC also placed US$83 million in escrow, which was not part of the figure shown to shareholders in August. That escrow amount included US$40 million that had previously been described in the circular to shareholders, and an additional US$43 million that Noble said MEC was entitled to deposit.

The actual amount of US$102 million received by Noble was derived from the estimated net working capital of US$249 million less US$65 million less amounts in escrow.

The circular illustrated total consideration as net working capital (based on a closing date of April 1, 2017) of US$313 million resulting in cash proceeds of US$248 million from the proposed disposal; and US$326 million (as at a closing date of July 1, 2017) translating to proceeds of US$261 million.

Asked why MEC pays less when working capital is turned into cash, Noble said: "The conversion of working capital into cash refers to the fact that trade accounts receivable fell as customer invoices were settled for cash. Therefore working capital decreased and as a result the amount paid by the buyer also decreased."

Noble said the final determination of the total consideration will only be fixed based on net working capital at the closing date. The company will update shareholders when that final determination is made.