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Noble to sell US-based ethanol producer to new buyer Mercuria unit for higher price

TROUBLED commodity trader Noble Group has found a new buyer in Mercuria Investments US, Inc to dispose of its US-based ethanol producer for a base consideration of US$15.5 million - US$3 million higher than its previous offer from Zeeland Farm Services.

On Nov 27, 2017, Noble had said it would sell its ethanol producing unit - Noble Americas South Bend Ethanol (Nasbe) - to Zeeland Farm for US$12.5 million, plus adjustments for working capital, inventory and debt.

However, in a Singapore Exchange (SGX) filing on Friday, Noble said it has entered into a new equity purchase agreement on Dec 7, 2017, with Mercuria Investments, a unit of Mercuria Energy, on the same terms as its deal with Zeeland Farm, except for the deletion of the provision relating to the go-shop period, and an increase in the base consideration of US$3 million.

Noble is expected to terminate its agreement with Zeeland Farm on Dec 11 at 12.01am (New York time). A termination fee of US$2 million will be incurred.

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Assuming that the new deal with Mercuria was completed on Oct 1, 2017, gross consideration would amount to approximately US$20 million, including a US$15.5 million base consideration, plus net working capital of US$0.9 million, and an inventory value of US$3.6 million, with no debt for the business as at Sept 30.

Net proceeds arising from the Nasbe disposal is expected to be about US$18 million, after deducting the termination fee. The disposal comes as Noble is seeking to sell off its global oil liquids business, Noble Americas Corp (NAC), to rival Vitol for US$1.4 billion to help pay off debt. In October, Noble completed the sale of Noble Americas Gas & Power Corp, to Mercuria Energy for US$102 million.

BT reported on Wednesday that the commodities trader faces pressure to tackle its mounting debt burden amid slipping cash holdings. While its debt pile stands at US$3.5 billion, its cash and short-term deposits (excluding cash balances with future brokers) fell to US$256 million as at end September, from US$467 million three months before.

For the three months to September, the group reported a net loss of US$1.2 billion, largely owing to write-downs for net fair-value gains and losses related to the sale of its businesses.

Nasbe is currently fully held by NAC, which Noble is selling to Vitol. Vitol has given NAC permission to go ahead with this new deal.

"This will allow Noble Group to monetise and realise the value of Nasbe prior to the closing (instead of post-closing) of the sale of the global oil liquids business," Noble said.

As at Sept 30, Nasbe which owns and operates an ethanol production plant in South Bend, Indiana, had a book value of around US$80.4 million, and a net tangible asset value of the same value.

Based on the Nasbe total consideration of about US$20 million and its carrying value as at Sept 30, the illustrative loss on the proposed disposal would amount to approximately US$60.3 million. Assuming that the deal had been completed on Jan 1, 2016 (being the beginining of FY2016), Noble's loss per share is expected to increase from 14 US cents to 70 US cents after the disposal.

Noble is set to hold a shareholder meeting in Singapore on Dec 15 to vote on the sale of majority of its oil business to Vitol Group. In addition, a coupon payment is due on Dec 24 for Noble's US$400 million perpetual securities, which have collapsed 46 US cents in the past year to 8.5 US cents on Thursday, according to Bloomberg. Noble has already deferred payment on the notes once.

As at 9.52am on Friday, the counter was trading 1.56 per cent down to S$0.126 per share.

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