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Noble's sea of red shows post-restructuring challenge for trader

[SINGAPORE] Noble Group's profit warning on Monday was a sea of catastrophic numbers: fresh write-downs of about US$1.5 billion will mean an annual loss approaching US$5 billion and leave the Asian commodity trader with negative assets of up to US$850 million.

On top of the headline figures, there was also a smaller sum that's likely to cause concern for the creditors and managers trying to keep the troubled company afloat through a debt restructuring: the US$100 million quarterly loss posted by continuing operations - principally coal and iron ore - businesses that are meant to service the remaining debt once lenders take control of Noble through an equity swap.

Unless the legacy business can be made profitable, a successful restructuring could prove a temporary reprieve after a three-year crisis marked by losses, writedowns and controversial accounting. For its part, Noble suggested that things would brighten once the restructuring was complete.

"Notwithstanding the challenges facing the group, primarily related to the availability of trade finance and constrained liquidity, the hard commodities businesses have proved to be resilient, as evidenced by physical volumes broadly keeping in line with prior levels," Noble said in Monday's statement.

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And there were indications that the preliminary deal struck with creditors last month would alleviate the liquidity crunch that's constrained traders. Noble has reached an in-principle agreement with an ad hoc creditors' group and bank ING Groep for a three-year US$700 million finance facility after the restructuring is effective, it said.

In the meantime, the writedowns outlined in the statement showed the the company's worsening predicament. Even after writing off billions last year, Noble said it expected further one-time losses of as much as US$1.5 billion from exceptional items including revaluations of the company's mark-to-market derivatives portfolio.

That will more than wipe out the remaining equity on the balance sheet, leaving the comment with a negative asset position of US$650 million to US$850 million at the end of last year.

For now, given talks with creditors and finance provided by its banks, "the board is, on balance and on the basis of legal advice, satisfied that the group can continue as a going concern, until such time as the restructuring is completed," the company said. Full-year results are due on Feb 28.

Noble also reported progress in persuading creditors to confirm the preliminary agreement that would cut the existing US$3.5 billion debt pile in half through an equity swap that hands creditors 70 per cent of the reformed company's shares.

Noble said the ad hoc group controls 36 per cent of its senior debt - obligations that include bonds due in 2018, 2020 and 2022 as well as credit facilities. In addition, that group's advisers are in talks with holders of a further 15 per cent of the debt, who've indicated "broad support" for a deal.

Since that debt-for-equity plan was unveiled, the proposal has drawn fire from a top shareholder as well as some bondholders.


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