Noble Group's farm unit sale counters junk threat as shares jump

[LONDON] Noble Group Ltd shares jumped after it agreed to sell the rest of its agriculture unit to China's Cofco Corp for at least US$750 million in cash, allowing the embattled commodities trader to pare debt and counter the threat of losing its investment grade rating.

"It helps Noble to raise the cash it needed to avert being downgraded to junk status, and also to get rid of liabilities," Bernard Aw, a strategist at IG Asia Pte, said by e-mail.

"It's critical for Noble to convince investors that it can transform the ailing company."

Asia's largest commodities trader is seeking to bolster liquidity through asset sales amid threats to its investment- grade credit rating and reverse a share-price slump that's made it this year's worst performer on the MSCI Asia Pacific Index.

While the proceeds would improve its financial leverage and liquidity, the full sale of the unit could weaken Noble's business position, including its business diversity and long- term competitiveness, Standard & Poor's said in a statement Wednesday.

Noble's shares added as much as 5.7 per cent to 46.5 Singapore cents before closing at 46 cents, the highest level in more than a month. The company's bonds due in 2020 rose 1.8 cents on the dollar to 69.7 cents, according to data compiled by Bloomberg.

PAY DEBT

Noble said in a statement Wednesday that as well as the upfront payment, it may receive as much as US$200 million in additional amounts depending on the future growth of the unit, known as Noble Agri. The entire proceeds from the sale of its 49 per cent stake will be used to pay down debt, the Hong Kong-based company said.

Cofco already owns the other 51 per cent in Noble Agri, which it bought for about US$1.5 billion in 2014. China's largest food company aims to build a global agriculture trading operation to rival leading players such as Cargill Inc.

In recent months, Standard & Poor's and Moody's Investors Service said that they may reduce Noble's credit rating to junk if its liquidity position doesn't improve. The trader said six weeks ago it planned to raise US$500 million through asset sales to avoid that fate.

Noble said Wednesday it would tentatively take a non-cash loss of US$546 million as it carried a higher valuation for Noble Agri on its books than the sale price.

Still, the trader said the cash injection from the sale would strengthen its balance sheet above the investment-grade threshold that both S&P and Moody's use. Noble said in a separate slide presentation that its adjusted net debt would drop to US$1.76 billion after the sale from US$2.51 billion previously.

SHARES SLUMP

Noble's stock has plunged about 60 per cent this year after short-seller Muddy Waters LLC and a group called Iceberg Research criticised the company's accounting amid a commodity collapse.

Noble denied the allegations and hired PricewaterhouseCoopers LLP to conduct a third-party review of its accounting. PwC published the report in August and said Noble complied with international accounting standards, while also recommending improvements in governance standards and the methodology used to value long-term contracts.

Cofco, which last year bought a majority stake in Dutch grain trader Nidera BV, would become one of the world's largest traders of agricultural commodities such as wheat and soybeans after completion of its latest deal. The Chinese company is known within the industry by the initials "CNN," which stand for Cofco, Noble Agri and Nidera.

The Beijing-based company will still have to battle the four top grain traders, collectively known as the ABCDs: Archer-Daniels-Midland Co, Bunge Ltd, Cargill and Louis Dreyfus Commodities BV. The Noble-Cofco deal requires approval by the Australian Foreign Investment Review Board.

BLOOMBERG