Noble Group’s Sea of Red Shows Post-Restructuring Challenge (2)
(Bloomberg) -- Noble Group Ltd.’s profit warning on Monday was a sea of catastrophic numbers: fresh writedowns of about $1.5 billion will mean an annual loss approaching $5 billion and leave the Asian commodity trader with negative assets of up to $850 million.
On top of the headline figures, there was also a smaller sum likely to cause concern for the creditors and managers trying to keep the company afloat through a restructuring: the $100 million quarterly loss posted by continuing operations -- principally coal and iron ore -- businesses that are meant to service remaining debt once lenders take control through an equity swap.
Unless the legacy business can be made profitable, a successful restructuring could prove a temporary reprieve after a three-year crisis marked by losses, writedowns and controversial accounting. For its part, Noble suggested that things would brighten once the restructuring was complete.
“Notwithstanding the challenges facing the group, primarily related to the availability of trade finance and constrained liquidity, the hard commodities businesses have proved to be resilient, as evidenced by physical volumes broadly keeping in line with prior levels,” Noble said in Monday’s statement.
Click here for a Gadfly commentary on Noble Group’s prospects.
On Tuesday, Noble Group’s bonds due 2020 fell 0.3 cent to 46.8 cents on the dollar, while the notes due 2022 were also 0.3 cent lower at 48.5 cents, according to Bloomberg-compiled prices. The trader’s Singapore-listed shares were little changed.
There were also indications from the company that the preliminary deal struck with creditors last month would alleviate the liquidity crunch that’s constrained traders. Noble Group has reached an in-principle agreement with an ad hoc creditors’ group and bank ING Groep NV for a three-year $700 million finance facility after the restructuring is effective, it said.
In the meantime, the writedowns outlined in the statement showed the company’s worsening predicament. Even after writing off billions last year, Noble said it expected further one-time losses of as much as $1.5 billion from exceptional items including revaluations of the company’s mark-to-market derivatives portfolio.
That will more than wipe out the remaining equity on the balance sheet, leaving the company with a negative asset position of $650 million to $850 million at the end of last year.
The eye-catching scale of the derivatives writedown may have been based on conservative accounting that would lower the company’s value and push creditors to accept the restructuring, according to Charles Macgregor, head of emerging markets at Lucror Analytics Pte. in Singapore. The company’s external media representative didn’t immediately respond to a request for comment.
‘Going Concern’
For now, given talks with creditors and finance provided by its banks, “the board is, on balance and on the basis of legal advice, satisfied that the group can continue as a going concern, until such time as the restructuring is completed,” the company said. Full-year results are due on Feb. 28.
Noble also reported progress in persuading creditors to confirm the preliminary agreement that would cut the existing $3.5 billion debt pile in half through an equity swap that hands creditors 70 percent of the reformed company’s shares.
Noble said the ad hoc group controls 36 percent of its senior debt -- obligations that include bonds due in 2018, 2020 and 2022 as well as credit facilities. In addition, that group’s advisers are in talks with holders of a further 15 percent of the debt, who’ve indicated “broad support” for a deal.
Since that debt-for-equity plan was unveiled, the proposal has drawn fire from a top shareholder as well as some bondholders.
February 20, 2018, 06:15:17 GMT
By Jake Lloyd-Smith, Will Kennedy and Denise Wee, with assistance from David Yong; Edited by Jason Rogers and Jake Lloyd-Smith.