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Noble Group debt back above US$0.50 as commodity distress eases

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Noble Group's plans to refinance loans due next month are getting a boost as the commodities collapse eases.

[SINGAPORE] Noble Group's plans to refinance loans due next month are getting a boost as the commodities collapse eases.

Bonds due 2018 from the resources trading company, which has been cut to junk and will be removed from Singapore's Straits Times Index, recovered to 59 US cents on the dollar Monday from as low as 41 US cents on Jan 22, a period in which its shares surged by almost 60 per cent.

Noble Group is also the top- performer from Southeast Asia in a Bank of America Merrill Lynch Asian high yield index, after commodity prices climbed 8 per cent from a January low.

Chief executive officer Yusuf Alireza is under pressure to seal the refinancing of loan facilities before they expire from mid-April through the end of this year.

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Discussions with banks about extending a revolving facility are "well advanced," he said on Feb 25, as the company posted its first annual loss since 1998. Noble Group had US$2.1 billion of bank debt due for repayment by the end of 2016 as of Dec 31, according to that financial report.

"The upturn in Noble's bond prices is largely due to the recovery in commodity prices," said Ray Choy, regional head of fixed income and currency research in Kuala Lumpur at RHB Research Institute. "While refinancing could occur due to good access to capital markets, the credit fundamentals of Noble still warrant some caution."

The company is now focused on generating cash and reducing its leverage, Mr Alireza said on the Feb 25 earnings call. It's also agreed term sheets with a number of core banks on new funding arrangements, he added. Noble Group declined to comment beyond those statements, said a spokeswoman at its external press adviser Bell Pottinger Plc.

Investors who bought the company's 2018 notes at their January low would have earned 42 per cent following their price surge, according to Bloomberg-compiled prices. Its 2020 bonds have rallied to 56.8 US cents from 40.2 US cents on Jan 21, handing buyers a 41 per cent return. The shares have soared since then as oil passes US$36 a barrel and iron ore approaches a five-month high.

It was only last July that Noble Group's dollar-based debentures traded above par, or 100 US cents on the dollar. As the commodities rout deepened and the firm's accounting methods came under scrutiny, the prices sunk below 70 US cents in late 2015, a level typically associated with companies in financial distress. Some of its loans traded at about 75 US cents on the dollar in January, people familiar with the matter said Feb 2.

The company is meeting with lenders in the US on Monday to discuss up to US$2.5 billion in credit facilities that will be used to refinance borrowings, according to a people with knowledge of the matter. The financing includes a US$1.5 billion committed portion and a US$1 billion slice that lenders can refuse the company to draw on, said the people, who aren't authorised to speak publicly.

The two loans will pay 1.6 per centage points and 1.7 per centage points more than the London interbank offered rate, said the people. The rates will be boosted if Noble's ratings are cut.

"Noble has made significant headway in reducing its adjusted net debt whilst maneuvering to turn cashflow positive," said Dhiraj Bajaj, senior vice president at Lombard Odier (Singapore) Ltd. "They've moved from a growth strategy to one in which they have to consolidate towards their key strengths in the light of very difficult industry conditions."

The rebound in Noble Group's bonds rewarded credit analysts at Barclays Plc and Deutsche Bank AG who recommended the March 2018 notes last month amid reports the commodity trader was renewing its credit lines. The plan, if successful, will give the company time to generate cash flow and reduce debt, Barclays said.

Not everyone is swayed. Nomura Holdings Inc. said in a March 4 report it was staying "underweight" on Noble Group's 2018 and 2020 notes, adding that "unless the company raises fresh capital, we expect its liquidity profile to continue to deteriorate".

"There is a difference between the bond prices being supported and credit fundamentals remaining weak," RHB's Mr Choy said. "There is a disconnect."

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