SINGAPORE/HONG KONG (BLOOMBERG) - Shares of Noble Group plummeted in Singapore after the embattled commodity trader warned of a quarterly loss of as much as US$1.8 billion and announced more asset sales, with S&P Global Ratings saying the disposals may not be enough and investors zeroing in on a bond coupon due on Saturday.
The shares sank as much as 49 per cent, while the bonds due in 2020 held near a record low, as the Hong Kong-based company abandoned its ambitions in global commodities trading with the sale of its gas-and-power unit, and planned disposal of its oil-liquids business. The sale proceeds may not be sufficient to mitigate underlying losses and offset less favourable access to credit lines, according to S&P's Danny Huang, director of corporate ratings.
Noble has been in crisis for more than two years, marked by vast losses, mounting concern it will default and accusations it inflated the value of some contracts, which it's denied. In an effort to raise funds, placate investors and pay down debt, the company has been selling businesses.
With billions of dollars of borrowing outstanding, JPMorgan Chase & Co said in a note that a coupon payment due July 29 on its 2020 bonds is now a key event to track.
"Noble is becoming a marketing office, and nothing more," said Jean-Francois Lambert, a consultant and former head of global commodity trade finance at HSBC Holdings, commenting before the S&P statement and the share plunge. "They have some debt to repay in the meantime. The question is how are they going to be able to do this."
Noble shares sank as much 28 Singapore cents to 29.5 cents, and traded at 39 cents at 1:39pm, taking their declines this year to 77 per cent. The 2020 bonds traded at 32.5 cents on the dollar after sinking to a record 32 cents on Wednesday, according to prices compiled by Bloomberg.
After the close of trade on Wednesday, Noble Group said that it expects a loss of between US$1.7 billion and US$1.8 billion for the quarter to June, which follows a smaller loss in the first quarter. The company also announced the sale of the gas-and-power unit to to rival Mercuria Energy Group for US$248 million.
While S&P kept Noble's CCC+ rating unchanged pending more information about cash flow and liquidity headroom, it flagged concerns.
There's "continuously deteriorating profitability and liquidity constraints," the assessor said in a statement on Thursday. "Management expects the company's access to liquidity, working capital, and trade finance is likely to remain restricted."
Noble still faces significant maturities in coming months in the form of US$380 million of senior notes due March 2018 and a US$1.1 billion revolving credit facility and term loan due May 2018, according to a report from Fitch Ratings last month. On Thursday, JPMorgan highlighted the payment due July 29.
The sale of the North American gas-and-power businesses implies banks and counter-party support "could be getting limited" and because of that, the company is raising cash for liquidity, JPMorgan said. The coupon that's due is a "key near-term event to monitor, it said.
Before the profit warning, Jefferies said it expected the weekend coupon payment to be made as its base case is that Noble does have enough cash, according to recent note. Both Noble's lenders and the company would not like to accelerate problems by not making it, Jefferies said.
Noble is expected to offer unsecured bondholders new secured bonds in exchange for a haircut of as much as 50 per cent on the principal, according to CreditSights. The trader is "out of large assets to sell" and more monetizations at similar terms to the Mercuria sale are unlikely, analyst Andy DeVries said in a note.
The loss in the June quarter largely stems from revaluing long-term coal contracts, whose valuation had been criticized by Iceberg Research, a group that first raised concerns more than two years ago. Excluding non-cash exceptionals, the adjusted net loss for the quarter will be US$450 million to US$500 million, while adjusted operating losses will be US$250 million to US$300 million.
"The offloading of its overseas units to focus on the Asian business could go some distance to improving the liquidity," Jingyi Pan, a Singapore-based market strategist at IG Asia Pte, said by email. "However, in the nearer term, its ability to handle debt obligations will be key."