Noble Group warned of a more than US$1 billion (S$1.36 billion) third-quarter net loss as it agreed to sell most of its oil business to Vitol Group, prolonging the embattled commodity trader's survival while highlighting the challenges ahead.
The long-awaited deal to sell its prized oil trading unit provided little immediate relief to the Hong Kong-based company. Its shares fell the most in three months yesterday as Noble said it would lose money on the deal.
Details of the sale failed to give much clarity on how much Noble would ultimately receive from Vitol, while the likely third-quarter results highlighted the firm's struggle to return to profitability as it offloads assets to repay debt.
"They're still fighting to survive," said Mr Nicholas Teo, a trading strategist at KGI Securities (Singapore).
Noble agreed to extend a covenant waiver on a US$1.1 billion revolving credit facility until Dec 20, highlighting how lenders are keeping the company on a tight leash, as analysts say a debt restructuring looks likely.
At the same time, Noble's continuing business - largely coal and iron ore trading in Asia - is likely to report a net loss of up to US$100 million for the third quarter. Its stock fell 6.6 per cent to 35.5 cents on the Singapore Exchange.
While the company has defended its accounting, its bonds have tumbled to distressed levels as it has written down the value of its long-term commodity contracts, ousted senior managers and reported a string of trading losses.
Yesterday, Noble's bonds due in 2020 rose 3.9 per cent to 39.5 cents on the dollar on relief over the sale of its oil business.
Prices had fallen last week after Vitol chief executive Ian Taylor said the deal was "very complicated", raising the prospect that the two sides would not reach a deal.
Noble said that based on its end-June accounts, it would have received net proceeds of US$582 million from the oil unit deal after paying back borrowings under a secured credit facility.
But that figure included proceeds from the earlier sale of its gas-and-power unit, the company said, and was prior to a third quarter in which the business was "adversely impacted" by "capital constraints".
Based on the end-June numbers, the company would report a US$525 million loss on the sale.
What is more, the deal is complex: Vitol will pay US$174 million of the closing price into three separate escrow accounts, Noble will carve out some oil deals and wind them down separately, and the final price is contingent on several side deals.
Vitol said it had taken advice from three different law firms.
Highlighting the risk that the deal could fall through before a final agreement is signed, Noble agreed to pay a break fee of US$40 million in case the deal was scrapped for reasons including its bankruptcy.
The deal for the oil business, one of Noble's most valuable remaining assets, follows the sale of a smaller gas-and-power trading unit to Mercuria Energy Group that was completed last month.
"The operating environment continues to be challenging," said Noble. "Conservative liquidity management and constraints placed on the group's access to trade finance lines led to disruption costs and prevented the group from taking advantage of profitable trading opportunities."