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Noble Group in need of restructuring: Muddy Waters
[SINGAPORE] Noble Group Ltd will almost certainly have to undergo a restructuring as the commodity trader battles for survival, according to Muddy Waters LLC founder Carson Block, who's shorted the company before but says right now he doesn't have bets against it.
"They're going to have a hard time escaping restructuring," Mr Block said in an interview on Bloomberg Television, adding that in his view the company had less-than-zero book value. "We're not shorted now - it's hard to borrow, it's expensive - and just understanding exactly when its last wheel will fall off." The crisis at Noble Group stretches back more than two years as the Hong Kong-based trader has grappled with losses, credit-rating downgrades and asset sales, as well as attacks from short-sellers including Muddy Waters.
This week, S&P Global Ratings flagged the risk of a default within a year, spurring a rout in its bonds and shares. The company's co-heads told staff in a memo that they were facing an "incredibly difficult environment."
"It looks like it's finally catching up with it, it's kind of incredible to see it take all these years to play out," said Mr Block, adding that he'd done his analysis of the company in 2014 and released the critique the following year after a similar attack from Iceberg Research. At the time, Noble Group rejected Muddy Waters's comments about its finances, as well as those from Iceberg.
Noble Group's shares have lost more than 70 per cent this year, with the dive deepening this month after a first-quarter loss, and S&P, Moody's Investors Service and Fitch Ratings Ltd. cutting ratings. The Singapore-listed shares were up 12 per cent to 43 Singapore cents at 2.02 pm after a five-day plunge.
In their memo, co-Chief Executive Officers Jeff Frase and Will Randall said new Chairman Paul Brough is leading a strategic review, while talks with core banks are ongoing. On Wednesday, the trader said it's still in talks with potential partners, and has appointed Morgan Stanley and Moelis & Co. for advice.
S&P has said Noble Group's capital structure isn't sustainable and there's potential that the company will face a nonpayment of its debt over the next 12 months. In its assessment, Moody's highlighted a US$900 million gap between estimated liquidity headroom and debt due by the middle of next year.
Following the first-quarter loss, which was driven by wrong-way bets on the coal market, Noble Group has flagged that it's trying to regain profitability by 2018-2019 although that's not certain. Singapore-based DBS Group Holdings Ltd has warned that the losses may well continue.
"Right now, the company really needs a white knight to come in and rescue it," Margaret Yang, a strategist at CMC Markets, said in a separate interview on Bloomberg Television. "Longer term, I think the company needs to prove to investors that it can turnaround its profitability and cash flow."