Noble’s credit extension sends shares surging but seen as short-term fix

Noble’s credit extension sends shares surging but seen as short-term fix
Reuters file photo
Published: 4:45 PM, June 19, 2017

SINGAPORE — A four-month credit extension for cash-strapped Noble Group sent the commodity trader’s shares up as much as 13.8 per cent on Monday (June 19), although market watchers warned that the extension was only a temporary respite.

The Singapore-listed firm persuaded banks to extend a US$2 billion (S$2.8 billion) credit line due to be rolled over by the end of the week to October, but was also asked to find a strategic investor, a person familiar with the matter told Reuters on Friday. Noble declined to comment on the credit line. Still, investors applauded the news, pushing Noble’s stock as high as 37 cents at about 3.45pm on the Singapore Exchange, up from its previous close of 32.5 cents.

“Any rollover is significant, purely because it allows this company to function for another four months. But this (the banks) is just one of the different stakeholders. It doesn’t mean (Noble) is completely clear,” said KGI Securities Singapore trading strategist Nicholas Teo. The commodity trader needs to show stability when reporting its next set of earnings, he said.

Noble bonds due in 2022 traded half a point lower at 37/39 cents on the dollar on Monday, while its credit default swaps implied a high default probability of 94 per cent.

“While it is certainly a positive-sounding headline, I am not sure it is the grand type of event that will arrest the negative momentum afflicting the company,” said Mr Todd Schubert, head of fixed income research at Bank of Singapore.

“First, it is only four months and gives the company limited breathing room. Also, we do not know either the pricing or terms of the extension,” he added.

Noble’s refinancing schedule was a top concern in the market, reflected in its perpetual bonds trading at 15/17 cents on the dollar. Coupon payments on the perpetual bonds are due later this month. Noble can defer payments without triggering a default under the bonds’ terms, although the market would view non-payment negatively and seek greater compensation for holding Noble debt. Coupon payments on other bonds are due in July and September.

“With at least US$1.5 billion in unsecured debt due in in the first half of 2018, it is clear that internal cash generation will be insufficient. What little hope remains is based on some form of white knight investor coupled with asset sales, but clearly market pricing of bonds implies an expectation of default and restructuring at this point,” said Mr Rick Mattila, strategy head at MUFG Securities Asia.

Noble had been under heavy pressure for several years, hit by a broad commodity downturn and accusations of murky accounting that it had repeatedly denied. The firm’s market capitalization has slumped from a peak of more than S$10 billion in 2011 to about S$450 million currently. REUTERS