Noble Group refinance needs in focus after sale of US unit

[SINGAPORE] Noble Group Ltd's biggest deal of 2016 has brought into focus one of the hurdles that the embattled commodity trader needs to clear in 2017: after announcing the sale of a US energy unit, just how significant will its refinancing needs be in May when its loans next come due.

The figure may be US$325 million when an estimated US$2.3 billion falls due, according to the base-case in a Morgan Stanley report on Tuesday, which outlined three scenarios ranging from US$25 million to US$725 million. The bank acted as an adviser to Noble Group in the sale of Noble Americas Energy Solutions for US$800 million plus the return of working capital, which was announced before the start of trade on Monday.

Noble Group's ability to boost liquidity, access bank financing and return to profitability are critical concerns for investors and lenders as the Hong Kong-based trader seeks to turn the tide after its share price collapsed, raw materials plunged and ratings companies cut its credit to junk. The company said the sale of the NAES unit to Houston-based Calpine Corp largely completes a drive to raise US$2 billion to buttress its finances. After the shares rose on Monday, the Singapore-listed stock traded lower on Tuesday.

"We are encouraged by the announcement that Noble will generate further liquidity ahead of its May 2017 US$2.3 billion refinancing," Morgan Stanley analysts including Charles Spencer wrote in the note, referring to the potential impact of the disposal. The sale "looks positive", the bank said.

An external media representative for Noble Group directed Bloomberg News to the company's presentation in June when contacted for comments. The trader said then its refinancing risk in 2017 would be eliminated after capital-raising initiatives, including a recent rights issue and the sale of NAES, as well as reductions in working capital.

Noble Group's refinancing requirement in May may be as low as US$25 million if the NAES sale garners US$1.05 billion, it has US$500 million from a recent rights issue and there's a further US$700 million drop from lower working-capital needs, Morgan Stanley said, outlining what it termed a bull-case scenario. The bank put the base-case outlook at US$325 million should working-capital needs fall by US$400 million and the other two figures remain the same, or US$725 million if there's no decline in working capital.

Noble Group's shares fell as much as 8.1 per cent to 18.2 Singapore cents and ended 6.6 per cent lower at 18.5 cents. That eclipses the 3.1 per cent gain at the close on Monday after the NAES deal was announced. The stock has recovered from a multi-year low of 11.2 cents last month.

While the NAES deal will strengthen Noble Group's liquidity position, it will not affect its ratings as the sale has been factored in, Fitch Ratings Ltd said in a statement on Tuesday. The assessor rates the company - which has China's sovereign wealth fund as a shareholder - at BB+ at present.

Noble Group still isn't out of the woods, according to Mervin Song, an analyst at DBS Group Holdings Ltd. While the deal may boost sentiment, earnings may remain under pressure as it passes on trading opportunities to conserve liquidity before it gets the proceeds from the disposal and release of additional working capital in December, he said in a note on Monday.

BLOOMBERG