Noble Group chairman determined to avoid repeat of Lehman

SINGAPORE (BLOOMBERG) - The Noble Group executive charged with restructuring the beleaguered commodity trader has no intention of getting embroiled in another bankruptcy.

After winning shareholder approval for the sale of its gas and power unit on Tuesday, chairman Paul Brough, who oversaw the liquidation of Lehman Brothers' assets in Asia, said Noble will likely find a buyer for its oil business by the end of the month and get an extension on a credit line beyond October. The company would then have the room to settle a repayment plan with its banks and avoid default, he said.

"I don't go into companies with the intention of liquidating them; I am a restructuring man," Brough told a shareholders' meeting in Singapore. "I have only once ever been in a Chapter 11 situation with Lehman Brothers, and I don't wish to go there again. So rest assured, I'm doing all I can to avoid any kind of formal process, and I'm doing all I can to try and turn the business around."

Noble is fighting for survival more than two years into a crisis marked by criticisms of its accounting, a plunge in its securities and credit rating downgrades. The trader is selling units to shore up its finances after posting a US$1.75 billion loss in the second quarter amid a surge in indebtedness. Moody's Investors Service has warned the sales may be insufficient to cover its debt, while S&P Global Ratings sees a risk of default in the next six months.

Mercuria Energy Group bought the gas and power operation for US$261 million, according to a circular to shareholders. Selling the oil business, and extending the credit facility as well as a covenant waiver, would give Noble "a reasonably good platform now to sit down with our banks and talk about a repayment plan," Brough said.

Once Asia's largest commodity trader, the company's market value has shrunk to just US$400 million from more than US$10 billion at the end of 2010. Noble's shares fell 1.2 per cent to 41 Singapore cents by 10:28am on Wednesday (Sept 6), taking losses this year to 76 per cent.

"Circumstances are very difficult indeed," including relationships with lenders, Brough said on Tuesday. "The first three months of my chairmanship was to try and restore the confidence of our bankers. If we can do that, then we can get back to trading, business as usual," he said, adding that the company will probably ask even more of shareholders in the future than it has already.

Noble Group has US$2.6 billion in bank debt and bonds due in the next 12 months, Moody's estimated in August. The company has been trying to restore confidence among banks, counterparties and investors after securing a covenant waiver until Oct 20. That was in line with the extension agreed for a borrowing base facility that underpins its US oil business.

Brough said: "I think if we can get the extension from our North American banks, which I expect to get very shortly, then we have a platform until the end of the year to complete the oil liquids sale and to talk to our other bond holders and lenders about a repayment plan."

The company announced the gas and power sale to Mercuria in July. Based on first half accounts, the company has flagged a possible US$133 million loss on the deal, or the difference between the book value of US$394 million and the sale price of US$261 million.

As for the oil liquids business, Barclays has estimated its value to be at least US$473 million. Noble also plans to raise a further US$800 million to US$1 billion from asset sales, while a search for a 'white-knight' investor continues.

After the sale of gas and power and oil liquids, operations would include energy coal, carbon steel materials, metals, freight and liquefied natural gas, according to a circular to shareholders dated Aug 19. The trader has signaled it's retreating to its Asian roots and has received support from Mercuria and a small number of banks to help access financing.