Noble shares leap on news of US unit's sale

$1.44b deal another step in right direction but firm hardly out of the woods, say analysts

A Noble Group sign is pictured at a meet-the-investors event in Singapore.
A Noble Group sign is pictured at a meet-the-investors event in Singapore.PHOTO: REUTERS

Shares of Noble Group jumped yesterday after the financially strapped commodity group announced it had sold its United States energy business for US$1.05 billion (S$1.44 billion).

Analysts said the move is another step in the right direction as Noble works to restore market confidence, but that it is hardly out of the woods.

The sale of Noble Americas Energy Solutions (Naes) to Calpine Corporation "substantially completes the US$2 billion capital-raising initiative that we announced in June", Noble co-chief executives Jeff Frase and William Randall said in a statement.

Selling the subsidiary - which supplies natural gas and power in the US - will require shareholder approval. An extraordinary general meeting date will be confirmed later, but the whole deal is expected to close in December.

Following the US$750 million sale of Noble Agri last December, Noble has been looking to offload Naes since May to further beef up its balance sheet, amid market scrutiny of its persistent liquidity issues.

As of June 30, Noble's net debt was about US$3.92 billion, up from US$3.69 billion a quarter earlier, while operating activities led to a cash outflow of US$569.73 million in the second quarter. The first half of the year ended with a US$14.41 million net loss.

Allegations of accounting fraud by the likes of Iceberg Research unnerved investors. Noble shares dived about 60 per cent from Jan 1 to Sept 2, when they hit 11.2 cents, the lowest since troubles began for the company.

Against this backdrop, Noble has gone through the pains of business restructuring and rights issue exercise, raising about US$1.9 billion in the year so far. Underperforming units such as the European power and gas business will also be shut down to cut cost.

The sale of Naes will indeed help Noble strengthen its balance sheet, DBS analyst Mervin Song noted, adding that the US$1.05 billion price tag was better than the US$900 million previously estimated.

Yet it will take time "for Noble to restore confidence in its business model, given negative operating cash flows, volatile profits and various credit agencies placing Noble on a negative outlook", he said.

Noble's credit rating has been cut to non-investment grade by Fitch, Moody's and Standard & Poor's despite the restructuring efforts.

The focus on improving liquidity also means that the management may be distracted from growth opportunities and profit generation.

"Combined with costs associated with closing capital-intensive or loss-making businesses, we expect Noble's earnings to remain under pressure until at least the completion of the sale of Naes in December," Mr Song said.

He raised Noble's target price to 19 cents with a "hold" call.

Still, yesterday's news was cheered by the market as Noble shares rose 3.13 per cent to 19.8 cents on 324 million shares traded.

With yesterday's gain, Noble's share price has rebounded around 77 per cent from its low last month and there have been signs that institutional investors may be slowly warming up to the company.

Last Friday, for instance, Noble announced that Prudential has raised its stakeholding from 9.99 per cent to 10 per cent, while Eastspring Investments increased its stake from 9.98 per cent to 10.05 per cent.

A version of this article appeared in the print edition of The Straits Times on October 11, 2016, with the headline 'Noble shares leap on news of US unit's sale'. Print Edition | Subscribe