Noble Group ‘fighting for its life’ as S&P sees default risk

SINGAPORE — Singapore-listed Noble Group’s crisis deepened after S&P Global Ratings flagged a risk of default for the commodity trader within a year, triggering a rout in the company’s shares before they were suspended ahead of a company statement. The 2020 bonds fell to a record low.

“Noble is fighting for its life now,” said Mr Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group, who’s been covering Noble Group since 2008 and has been underweight on the bonds since 2015. “We’re not sure how long it can sustain without a white knight.”

Noble Group declined to comment on S&P’s assessment in response to a request from Bloomberg News.

The Hong-Kong based trader’s troubles are deepening after two turbulent years that have been marked by losses, asset sales, and accusations of improper accounting that it has denied. Since surprising investors two weeks ago with a quarterly loss, the shares have tumbled to multiyear lows and the price of its bonds has fallen by more than half. S&P’s warning follows downgrades from Moody’s Investors Service and Fitch Ratings in recent days.

There’s “potential that the company will face distress and a nonpayment of its debt obligations over the next 12 months,” S&P said in a statement late Monday as it cut the company’s ratings by three steps to CCC+. “The company’s capital structure is not sustainable,” S&P said.

The shares plunged as much as 32 per cent to 40 Singapore cents, and were at 42 cents as the halt kicked in after just 36 minutes of trade on Tuesday morning. The stock has lost 75 per cent this year, following a 44 per cent drop in 2016 and 65 percent plunge the year before. The company’s 2020 bonds sank to an unprecedented 39.4 cents on the dollar.

Major Maturities

S&P said that Noble Group has three major maturities over the next 12 months, listing US$656 million (S$910 million) due in 2017, of which US$620 million are borrowing-base facilities due in June 2017; US$379 million under a medium-term note programme due in March 2018; and US$1.1 billion in revolving credit facilities due in May 2018. Beyond that, there are bonds due in 2020 and 2022.

“Over the next three years, it’s got huge amounts of debt maturing and right now the company is deeply trapped, unable to make any profit,” Ms Margaret Yang, a strategist at CMC Markets in Singapore, said by phone. A potential default over the coming year is “totally possible,” according to Ms Yang.

Noble Group is seeking a new US$2 billion credit facility from its lenders before the US$620 million in loans mature under the existing facility next month. “Conversations with the banks are ongoing,” chief financial officer Paul Jackaman said earlier this month.

In its assessment, Moody’s highlighted a US$900 million gap between estimated liquidity headroom of about US$1.2 billion and the US$2.1 billion in debt due by the middle of next year. Fitch said while Noble Group has adequate funds to cover maturities in 2017, it’ll need to source external financing in 2018.

Noble Group’s new chairman, Paul Brough, has been tasked with leading a review after he was named to the post this month, replacing founder Richard Elman. “The new chairman is considering assets sales and other strategic options, but there is limited visibility on the plan,” S&P said.

Troubled Times

While the turmoil at Noble Group stretches back more than two years, there’s been a flurry of developments over the past two weeks following the surprise profit warning for the first-quarter. Below is a timeline of major recent events, according to Bloomberg.

NOBLE GROUP TIMELINE, MAY 2017

May 9: Noble Group issues profit warning for first quarter

May 10: Bonds slump after profit warning

May 11: Shares sink in Singapore as trading resumes after public holiday

May 11: S&P says debt load unsustainable

May 11: Noble Group reports loss, appoints chairman to review options

May 12: Noble Group shares cap 48 percent weekly loss

May 15: Moody’s cuts rating, flags US$900 million funding gap

May 16: Singapore Exchange says its ‘closely monitoring developments’

May 16: Fitch Ratings cuts rating, says external funds needed in 2018

May 22: S&P cuts rating, warns of risk of default