Noble Group explains why gas unit sale earned millions of dollars less than expected

Noble is still pressing on with the sale of its oil business, which trades about 2.5 million barrels a day of crude and refined products.
Noble is still pressing on with the sale of its oil business, which trades about 2.5 million barrels a day of crude and refined products. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Noble Group, the commodity trader struggling to avoid a default, has set out why it received millions of dollars less from the sale of its North American gas and power unit than the company had previously indicated, responding to queries from the Singapore exchange.

The figures differed because the unit's working capital shrank, cutting the amount that needed to be paid by Mercuria Energy Group Ltd, Noble said in a statement on Monday (Oct 9). The illustrative sum given earlier by Noble also didn't take into account funds that were placed in escrow, it said.

The Hong Kong-based trader is under intense scrutiny from investors and regulators as it pursues a shrink-to-survive strategy, selling off businesses to pay down debt. As part of that, Mercuria paid Noble US$102 million for the gas and power unit and deposited a further US$83 million into an escrow account. Noble had estimated it would be paid US$261 million for the business based on its end-of-June accounts, and SGX had asked the company to reconcile the difference between the figures.

The difference between the closing amount and the illustrative total consideration was a result of "a decrease in North American Gas and Power's working capital between 31 March 2017, 30 June 2017 and 30 September 2017," the company said. In addition, the illustrative total consideration didn't take into account the funds placed into escrow, it said.

Noble shares were 1.3 per cent higher at 40 Singapore cents at 9:14am in Singapore after the statement, which was released before the start of trade. The stock has sunk 76 per cent this year.

The lower sale figure is a blow for Noble as it bids for survival more than two years into a crisis marked by accounting criticisms, a plunge in its securities and rating downgrades. The company had already flagged a potential US$133 million loss on the unit's disposal based on its estimated sale price of US$261 million, compared with the book value of US$394 million at the end of June.

According to a circular to shareholders in August, US$40 million of the total sale price would be deposited into an escrow account when the deal completed, unless the two companies disagreed on the valuation. In that case, Mercuria would deposit a higher amount in escrow to make up for the difference.

Noble is still pressing on with the sale of its oil business, which trades about 2.5 million barrels a day of crude and refined products. The list of potential buyers for the unit has been pared down to Vitol Group and Mercuria, according to people familiar with the matter.