Commodity trader Noble Group is reportedly planning a US$300 million (S$422.7 million) bond issue as the embattled company looks to replace short-term credit lines with longer-term funding.
Mainboard-listed Noble is looking to take advantage of a rally in the high-yield debt market in Asia to launch the issue, the Financial Times (FT) reported yesterday. People familiar with the matter told the newspaper that the bonds will carry a coupon of 9 per cent.
Noble declined to comment.
Once the largest independent trader in Asia, Noble has been hammered by two years of questions over its accounting during the commodity slump. The firm was forced to shrink in 2016 to stay afloat, which resulted in the company selling its operations and tapping shareholders for US$500 million.
It trimmed businesses to buffer its strained balance sheet, selling subsidiaries and laying off employees as total headcount dropped from 1,525 at end-2015 to 1,050 last December.
Noble last week announced its 2016 results, which showed the firm was back in the black after painful adjustments, with management expecting further growth in earnings.
The issuance of proposed notes, if successful, would be credit positive, because the proceeds will be used to refinance existing short-term debt and secure long-term funding, thereby partly alleviating pressure on its liquidity.
RATING AGENCY MOODY'S
Net profit for the 12 months to Dec 31 was US$8.65 million, a major reversal from 2015's US$1.67 billion loss. The earnings improved despite a 30 per cent year-on-year slide in revenue to US$46.53 billion. However, the firm suffered a large cash outflow of almost US$600 million as nervous lenders and counter parties reduced credit lines.
Cheap finance is essential to commodity traders which operate on razor-thin margins.
Noble is now looking to reduce its use of unsecured revolving credit facilities, which have to be repaid or refinanced every one to three years, the FT reported. In 2017, the company faces US$1.3 billion of short-term debt maturities.
To that end, the company recently announced a $1 billion borrowing facility secured against its holdings of commodities and is now preparing to launch a bond issue.
"The issuance of proposed notes, if successful, would be credit positive, because the proceeds will be used to refinance existing short-term debt and secure long-term funding, thereby partly alleviating pressure on its liquidity," said rating agency Moody's.
Moody's said it had assigned a B2, or "highly speculative" rating, to the notes and said the company's rating could be downgraded, citing US$1.5 billion of debt maturities in 2018, the FT report added.