Noble shares whipsawed after company says talks with potential strategic partners still on

The reception of Noble Group is seen at its headquarters in Hong Kong.
The reception of Noble Group is seen at its headquarters in Hong Kong. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Noble Group shares endured a roller-coaster ride on Wednesday (May 24) as investors weighed concerns about the embattled commodity trader's ability to sustain its business and meet debt obligations with comments from the company that it remains in talks with several potential strategic partners.

The shares first plunged as much as 27 per cent to the lowest level since 2000 as trading resumed in Singapore after a halt, then reversed that slump. The switchback ride followed a 28 per cent collapse on Tuesday, and at its nadir cut the Hong Kong-based company's market value below S$500 million from S$2.2 billion at the end of 2016.

Once Asia's biggest commodity trader, Noble Group's crisis deepened after S&P Global Ratings flagged a risk of default, triggering the rout in its shares on Tuesday before they were halted.

In a statement before the open, Noble Group said talks were ongoing, without identifying would-be partners. It also said it's reviewing its options with advice from Morgan Stanley and Moelis & Co.

"The story for Noble continues to remain fundamentally weak," Nicholas Teo, a trading strategist at KGI Securities, said in a note. "Liquidity concerns will continue to plague them as they scramble to meet upcoming debt obligations."

The stock sank as much as 11.5 Singapore cents to 30.5 cents in the opening minutes of trade on Wednesday, then recovered. It was at 42.5 cents at 11:07am, 1.2 per cent higher. Noble's dollar bonds due in 2022 rose 2.9 cents on the dollar to 40.1 cents.

Noble has endured two turbulent years marked by losses, asset sales, and accusations of improper accounting that it has denied. The trigger for the latest spiral downward was a profit warning for the first quarter on May 9, that was confirmed later the same week. Following the announcement of the loss, S&P, Moody's Investors Service and Fitch Ratings all cut the company's ratings and flagged concern about its funding.

Noble's crisis centres on its liquidity. As the company tries to find an investor, it's holding talks with banks on renewing a US$2 billion facility that underpins its oil business, and is due to expire next month. Noble Group is likely to reduce the size of that facility as at least two banks plan to withdraw, according to a person familiar with the matter, asking not to be identified discussing internal affairs.

In another blow, Reuters had reported on Monday that Sinochem Group is no longer pursuing an investment in the company. In its statement, Noble referred to that report. The article "indicated the reasons for any transaction not proceeding were commercial concerns about Noble," it said. "Noble is not aware of any reason that would confirm what the article reports."

On Monday, S&P said there's potential the company will face a nonpayment of its debt obligations over the next 12 months, adding that its capital structure isn't sustainable. In its assessment, Moody's highlighted a US$900 million gap between estimated liquidity headroom and debt due by the middle of next year.

Noble two weeks ago reported a surprise loss of US$129 million (S$179 million) for the first quarter, compared with a US$40 million profit a year earlier. It blamed its loss on challenging market conditions and dislocations in the coal market.

Noble shares have nosedived 76 per cent so far this year, following a 44 per cent drop last year and a 65 per cent plunge the year before. Its market capitalisation has shrunk to a mere S$551.4 million from around S$9.6 billion in early 2015 before Iceberg Research questioned its accounting practices as it battled a commodities downturn.

Noble's new chairman, Paul Brough, has been tasked with leading a review after he was named to the post earlier this month, replacing founder Richard Elman. The company's existing shareholders include China Investment Corp, the nation's sovereign wealth fund.