Noble Group's plans to refinance loans due next month are getting a boost as the commodities collapse eases.
Bonds due in 2018 from the resources trading company, which has been cut to junk and will be removed from the Straits Times Index, recovered to 60.3 cents on the dollar yesterday from as low as 41 cents on Jan 22, a period in which its shares surged 60 per cent.
Noble Group is also the top performer from South-east Asia in a Bank of America Merrill Lynch Asian high yield index, as commodity prices climb about 9 per cent from a January low.
Chief executive officer Yusuf Alireza is under pressure to seal the refinancing of loan facilities before they expire from mid-April through the end of this year. Discussions with banks about extending a revolving facility are "well advanced", he said on Feb 25, as the company posted its first annual loss since 1998.
Noble Group had US$2.1 billion (S$2.9 billion) of bank debt due for repayment by the end of this year, as of Dec 31, according to its financial report.
"The upturn in Noble's bond prices is largely due to the recovery in commodity prices," said Mr Ray Choy, regional head of fixed income and currency research in Kuala Lumpur at RHB Research Institute.
They've moved from a growth strategy to one in which they have to consolidate towards their key strengths in the light of very difficult industry conditions.
MR DHIRAJ BAJAJ, senior vice-president at Lombard Odier (Singapore), on what Noble has done to turn its finances around.
"While refinancing could occur, due to good access to capital markets, the credit fundamentals of Noble still warrant some caution."
The company is now focused on generating cash and reducing its leverage, Mr Alireza said on the Feb 25 earnings call. It also has agreed term sheets with a number of core banks on new funding arrangements, he added.
Investors who bought the company's 2018 notes at their January low would have earned 44 per cent following their price surge, according to Bloomberg-compiled prices. Its 2020 bonds have rallied to 58.3 US cents from 40.2 US cents on Jan 21, handing buyers a 43 per cent return. The shares have soared since then, as oil passes US$37 a barrel and iron ore approaches a nine-month high.
It was only last July that Noble Group's US dollar-based debentures traded above par, or 100 US cents on the dollar. As the commodities rout deepened and the firm's accounting methods came under scrutiny, the prices sank below 70 US cents late last year, a level typically associated with companies in financial distress. Some of its loans traded at about 75 US cents on the dollar in January, people familiar with the matter said on Feb 2.
Moody's Investors Service lowered its rating on Noble Group below investment grade on Dec 29, while Standard & Poor's moved it to junk status on Jan 7. Fitch Ratings has kept Noble Group on the lowest investment grade.
The company's Noble Americas unit met lenders in the United States on Monday to discuss up to US$2.5 billion in credit facilities that will be used to refinance borrowings, according to people with knowledge of the matter.
They include a US$1.5 billion committed portion and a US$1 billion slice that lenders can refuse the company to draw on, said the people, who are not authorised to speak publicly.
The two loans will cost 1.7 percentage points and 1.6 percentage points more than the London interbank offered rate respectively, said the people. The prices will increase if Noble Group's ratings are cut.
"Noble has made significant headway in reducing its adjusted net debt whilst manoeuvring to turn cashflow positive," said Mr Dhiraj Bajaj, senior vice-president at Lombard Odier (Singapore). "They've moved from a growth strategy to one in which they have to consolidate towards their key strengths in the light of very difficult industry conditions."