Talks to buy Noble's oil unit get bogged down

Vitol Group chief executive Ian Taylor said on Wednesday that it was the overall terms and conditions of the deal that posed a stumbling block, more so than the price.
Vitol Group chief executive Ian Taylor said on Wednesday that it was the overall terms and conditions of the deal that posed a stumbling block, more so than the price.PHOTO: BLOOMBERG

Vitol CEO calls deal complicated, unsure how negotiations will end

LONDON • Vitol Group's negotiations to buy Noble Group's oil trading unit are "very complicated" and may not end in a deal, the chief executive of Vitol said, adding to pressure on his Hong Kong-based rival.

The sale of the oil business is crucial to the survival of mainboard-listed Noble Group, once Asia's largest commodity trader.

It is rushing to sell the unit in order to pay back about US$1 billion (S$1.4 billion) of debt under its secured credit facilities, of which the largest matures in mid-January.

"We're engaged; we have been talking to Noble," Mr Ian Taylor told Bloomberg TV on Wednesday in the first public confirmation by the world's largest independent oil trader that it is bidding for its rival's business. But he warned that the talks may not end in an agreement.

"It's a very, very complicated deal. There are some technicalities," he said. "It's very difficult to know exactly how that's going to end, I'm afraid."

Asked whether the stumbling block was price, he replied that it was "more the overall terms and conditions" of the deal.

A spokesman for Noble Group in London declined to comment.

UNCERTAIN ABOUT OUTCOME

It's a very, very complicated deal. There are some technicalities. It's very difficult to know exactly how that's going to end, I'm afraid.

MR IAN TAYLOR, chief executive officer of Vitol.

Noble's shares were broadly unchanged yesterday, but its bonds dropped. Noble's bond due in 2020 fell 1.9 per cent to 37.9 cents on the dollar, the lowest since early August.

Bloomberg reported last week that Vitol was in advanced talks to buy the business, which trades about 2.5 million barrels a day of crude and refined products.

But the talks have been complicated by issues including how much of the sale price should be paid into an escrow account, according to people familiar with the matter.

An earlier deal to sell Noble's smaller gas-and power-trading unit to Mercuria Energy Group reaped less than anticipated as Mercuria paid 45 per cent of the total sale consideration into an escrow account.

Noble's negotiations with its lenders have also complicated the oil sale, the people said.

The trader has a covenant waiver on a US$1.1 billion credit facility that will expire at the end of this week unless Noble can secure an agreement to extend it.

What is more, while Vitol is keen to acquire some parts of Noble's business, such as a long-term contract for shipping via the Colonial pipeline, it is less interested in other loss-making businesses that would probably have to be shut down or sold, the people said.

Noble is insisting on selling the unit as a whole.

"They've got lots of businesses," Mr Taylor said. "They obviously are looking for a clean deal."

Initially, Noble Group had said it was aiming to announce an agreement by the end of last month.

Noble Group has been under increasing pressure since May, when a surprise trading loss compounded a long-running crisis that saw its market value collapse by more than 90 per cent and its bonds tumble to less than 50 cents on the dollar.

The company warned of the risk of bankruptcy at two of its major subsidiaries in audited accounts filed in recent weeks in Britain and Singapore. In particular, it highlighted in a filing by subsidiary Noble Resources UK Holdings that its ability to meet its obligations was dependent on factors including "asset monetisation plans being carried out successfully".

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 20, 2017, with the headline 'Talks to buy Noble's oil unit get bogged down'. Print Edition | Subscribe