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Noble selling businesses, assets to pare debt; expects loss for Q2
TROUBLED commodity trader Noble Group, in updates on its strategic review, said that it will continue to be focused on debt reduction by monetising its Global Oil Liquids business, which is also its most working capital intensive operation, and its North American Gas & Power business.
Together, this will generate "significant cash proceeds" and allow the group to retire the US$2 billion Noble Americas Corp secured borrowing base revolving credit facility and the US$1 billion Noble Clean Fuels Limited secured borrowing base revolving credit facility.
Net proceeds from the sale of the Global Oil Liquids and North American Gas & Power businesses, along with proceeds from a new asset disposal programme comprising certain of the group's assets located outside North America, will be applied towards reducing the group's remaining debt, it added.
Cash flows from the hard commodities businesses will also help. For this reason, arrangements have been put in place to improve access to trade finance facilities in Asia to support its hard commodities businesses. This includes a partnership with Mercuria Energy Group and certain of its affiliates, under which Noble and Mercuria will explore strategic alliances in Asia.
"The group will also plan to recapitalise its hard commodities businesses by continuing to seek a new investor in the group and will also explore potential investments and seek further strategic alliances, including with Mercuria, to fund working capital and other capital requirements to maintain and grow volumes in the future," it said.
Noble has signed a binding stock purchase agreement to sell its wholly-owned unit, Noble Americas Gas & Power Corp, to Mercuria Energy America for US$248 million. The sale is expected to close before the end of 2017.
It has also begun a formal sales process of its Global Oil Liquids business with a short list of potential buyers. A sale of this business will significantly reduce the group's reliance on trade finance lines and overall bank funding, it said. Final bids are expected to be received in the third quarter of this year.
For its asset disposal programme, Noble said it expects the programme to generate net proceeds of between US$800 million and US$1 billion over the next two years. At this time, no binding agreement has been entered into for any disposals.
The board has also decided to implement a more conservative balance sheet valuation. Adjustments would include reserving of the entire hard commodities level-three net fair value gains on commodity and other derivative financial instruments balance, along with applying additional reserves against certain level-two net fair value gain positions. The level-three net fair value gains balance at end-December 2016 was US$660 million.
The group also said it is expected to report a loss in the second quarter of 2017, due to the challenging operating environment along with conservative liquidity management, scaling back of risk positions and constraints placed on the group's access to trade finance lines, leading to disruption costs and preventing the group from taking advantage of profitable trading opportunities.
The counter closed 1.5 Singapore cents or 2.5 per cent lower at S$0.575 on the stock market.