Noble Group flags net loss of up to US$1.25b for Q3 as it sells oil unit to Vitol, shares slump

Noble, once Asia's largest commodity trader, has been rushing to sell its oil business to pay back lenders in a struggle to survive. PHOTO: ST FILE

SINGAPORE (BLOOMBERG) - Embattled Singapore-listed commodity trader Noble Group agreed to sell most of its oil-liquids business to Vitol Group to help pare down debt, while warning that it's set to post a net loss of more than US$1 billion for the third quarter as its access to financing remains constrained.

Proceeds from the sale would have been US$582 million, an illustrative figure that's based on first-half accounts, according to statements from the company on Monday (Oct 23). Noble Group also said that amount was derived from a starting sum that included proceeds from the earlier sale of its gas-and-power unit.

Noble shares, which were suspended on Friday ahead of the announcements, dropped as much as 12 per cent to 33.5 Singapore cents, and traded down 9 per cent at 34.5 cents at 1.15pm. The stock has collapsed about 80 per cent this year amid concerns Noble will default.

Noble said on Monday it expected a total net loss of US$1.1 billion to US$1.25 billion in the third quarter. That total figure includes an adjusted net loss from continuing operations of US$50 million to US$100 million, as well as exceptional losses including non-cash items of US$1.05 billion to US$1.15 billion.

Lenders agreed to a two-month extension of a waiver related to a revolving-credit facility to Dec 20. Proceeds from the oil sale and gas-unit sale are expected to be enough to retire the Noble Americas Corp borrowing base revolving facility, and the Noble Clean Fuels Ltd borrowing base revolving facility.

Noble Group, once Asia's largest commodity trader, has been rushing to sell its oil business to pay back lenders in a struggle to survive. The deal is the latest in a string of disposals as executives pursue a shrink-to-survive strategy to meet obligations. The company's crisis spans the past two years and its shares have lost about 90 per cent since early 2015 as Noble Group draws back to a largely Asian business focused on coal, iron ore, freight and LNG.

"The core of their business has changed to some degree, but they're still fighting to survive," Nicholas Teo, a trading strategist at KGI Securities (Singapore) Pte, said by phone. "Management has been selling assets to lighten the debt load, and this oil deal is quite significant in size."

Noble had total debt of US$4.6 billion at end of June, including US$2.7 billion of bonds, US$1.1 billion of a revolving credit facility, and two borrowing base facilities, according to Bloomberg-compiled data. Its 2020 notes rose 1 cent on the dollar to 38.7 cents, according to Bloomberg-compiled prices.

"The operating environment continues to be challenging," for Noble and that affected performance in the third quarter, the company said. "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."

The deal for the oil business follows the sale of the smaller gas-and-power trading unit to Mercuria Energy Group Ltd, which was completed last month. Noble received less than anticipated from that disposal - having estimated Mercuria would pay US$261 million for the unit, Noble received US$102 million, with a further US$83 million deposited into an escrow account.

"The net proceeds will unlock capital from Noble Group's balance sheet and generate significant liquidity," the company said, referring to the cash it'll get from selling the oil-liquids business to Vitol, the world's largest independent oil trader. "It is expected that the net proceeds will be made available to reduce Noble Group's indebtedness."

Noble in July disclosed the plan to sell the oil business, which trades about 2.5 million barrels a day of crude and refined products. A plan to announce a deal by end-September was delayed in part by the impact of hurricane Harvey in Houston, where the bulk of the oil business is located.

Earlier this month, the deal looked to be at risk when Vitol Group's chief executive officer said negotiations were "very complicated." In an interview with Bloomberg TV, Ian Taylor warned that the talks may not end in an agreement. Asked whether the stumbling block was price, he replied that it was "more the overall terms and conditions" of the deal.

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