Update: Noble jumps on advanced talks to sell agriculture unit stake

[SINGAPORE] Noble Group Ltd shares surged in Singapore and its bonds rose after Asia's largest commodities trader said that it was in advanced talks to sell the rest of its agriculture unit, potentially bolstering its drive to raise cash and avoid a credit-rating cut to junk.

The shares rallied as much as 12 per cent to 43.5 Singapore cents and traded at 42.5 cents at 1:17 p.m. local time after Noble Group said late on Tuesday that the company is talking with potential purchasers about a 49 per cent stake in Noble Agri Ltd. Cofco Corp, China's largest food company, is one of the potential buyers, according to a person familiar with the matter. Cofco officials didn't respond to e-mails or texts seeking comment.

Noble Group has said it plans to raise US$500 million through asset sales to bolster its balance sheet. Standard & Poor's and Moody's Investors Service said this quarter that they may reduce the company's credit rating to junk if the liquidity position doesn't improve. The stock has still lost 63 per cent this year as commodity prices slumped and short-seller Muddy Waters LLC and a group called Iceberg Research criticized Noble's accounting.

"If they do manage to sell the 49 per cent stake then that's going to remove a big chunk of the negative earnings," said Carey Wong, a Singapore-based analyst at Oversea-Chinese Banking Corp. "The million-dollar question is pricing, and how much they are going to get for it." Noble's bonds due in 2020 rose 2.9 cents, set for their biggest daily increase in more than two months, to 68.65 cents on the dollar as of 1:23 p.m. in Hong Kong, according to prices compiled by Bloomberg.

The company is seeking about US$750 million for the stake and could get further compensation depending how the agribusiness performs, said the person, who asked not to be identified because the talks are private. Cofco already owns 51 per cent of Noble Agri, which it bought for US$1.5 billion.

In the third quarter, Noble Group's net income fell 84 per cent to US$24.7 million as sales dropped 20 per cent to US$18.7 billion. While margins rose and tonnages handled were a record, losses widened at its mining and metals unit and from joint ventures and associates, notably Noble Agri.

While a sale may help to improve the company's financial position, it may risk Noble Group losing exposure to soft commodities that are forecast to outperform other materials over the next two years, according to Wong. "Unless they have off- take agreements, then potentially they could be selling themselves short, so it's a tough call," Wong said.

Farm commodities are seen as a bright spot among raw materials in 2016, with most crop prices set to average higher for first time in several years, BMI Research said in e-mailed report on Monday. Agricultural markets are tightening slowly but steadily, a trend that will continue into 2016, it said.

Noble Group Chief Executive Officer Yusuf Alireza said in August that while the company will do what's needed to support the investment-grade rating, it's not required for the business. After Moody's announced the ratings review, Noble Group said that it's confident of meeting that assessor's targets.

A Singapore-based spokeswoman for Noble Group declined to comment beyond the company's statement.

BLOOMBERG