Noble Group's lifeline depends on bank support for new US$2b loan

While Noble's stock climbed 3.6 per cent, it is still down about 50 per cent this month.
While Noble's stock climbed 3.6 per cent, it is still down about 50 per cent this month. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Noble Group's stock and bonds rose on Thursday (May 18) after people familiar with the matter said the embattled commodity trader has approached lenders to replace a credit facility with a new US$2 billion (S$2.78 billion) loan. Now investor focus shifts to bank support for that lifeline.

Mitsubishi UFJ Financial Group is said to be arranging the new 364-day revolving credit facility, the people said, asking not to be identified because they aren't authorized to speak publicly. Noble chief financial officer Paul Jackaman said last week the company is in talks with lenders over renewing a secured borrowing facility that's been extended to the end of June. The new loan is to refinance that facility, according to Glenn Ko, head of Asia desk trading strategy at HSBC Holdings in Hong Kong.

While Noble's stock climbed 3.6 per cent as of 11:18am in Singapore, it is still down about 50 per cent this month after the firm reported last week a net loss of US$129 million in the first quarter. Its bonds due in 2022 rose 3.2 cents to 55.1 US cents, compared with 98.2 cents at the start of the month. Paul Brough, a former KPMG executive, was appointed chairman of Noble last week, taking over from founder Richard Elman. Its credit rating was cut further into junk territory this week.

"The company has always been highlighting strong banking relationships in the past and even during the tough times they managed to get bank funding," said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management in Singapore. "This time round it could be more uncertain given that quite a number of things are happening at the same time including first-quarter losses, new management, timing of those events six weeks after the recent bond sale."

A media representative for Noble Group and a spokeswoman for MUFG weren't able to immediately comment when called and emailed.

"If the banks are comfortable loaning against the trading book it would be a huge vote of confidence across the whole capital structure," said Andy DeVries, analyst at CreditSights. "I assume the banks not only have access to more details on the trading book positions than the public does but the banks have experts that specialize in these positions too."

Noble is offering investors 185 basis points over the London interbank offered rate on an US$800 million uncommitted tranche and 195 basis points over Libor on the remaining US$1.2 billion committed tranche, the people said. The pricing is in line with last year's deal, they said. The terms may change given recent downgrades by rating firms, according to the people.

Fitch Ratings cut its credit rating on Noble deeper into junk territory on Tuesday, saying it will need to source external financing in the first half of next year. That came after Moody's Investors Service took a similar step.

Noble's shares are on course for a third straight day of gains, the longest rising streak since March, after losing almost half their value last week.

The fact that there hasn't been a spike in pricing on the loan is positive, said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp. "However, the loan isn't completed and the market will look to see to what extent terms are modified."