Noble continues to have support of bankers: CEO

SINGAPORE - Noble Group said on Thursday that it continues to have the support of its bankers as it secured shareholders' approval to sell its remaining stake in its agriculture unit in a bid to strengthen its balance sheet and boost its liquidity position.

"Our banks continue to be supportive," said its CEO, Yusuf Alireza, in response to a question at a special general meeting. "We're in a position where we have the liquidity, and also have the support of the banks to continue to fund our business."

Mr Alireza also expressed confidence in the group's ability to roll over its debts. According to Standard & Poor's, Noble has a US$2.2 billion credit revolving facility due in May, as well as about US$360 million of bonds maturing in the next few months.

Early on Thursday morning, Noble said it had bought back US$31.6 million worth of its senior notes due 2020 and US$1 million of its bonds due 2018. These represented 2.6 per cent and 0.26 per cent of the respective outstanding principal amounts of the bonds immediately before the repurchase.

The comments by Mr Alireza come amid increased market attention on whether the firm can continue to access cheap bank funding after Moody's and Standard & Poor's cut Noble's ratings to junk earlier this month.

Low financing costs are important for commodity trading companies which rely heavily on debt to finance large shipments of oil, coal and other products. Fitch Ratings, the only credit rating agency with whom Noble enjoys an investment grade rating now, has warned that a deterioration in its ability to access unsecured bank funding could result in negative ratings action.

At the special general meeting on Thursday, Noble's shareholders approved the proposed sale of its 49 per cent stake in Noble Agri to Cofco International for US$750 million in cash, with 90 per cent of votes cast in favour of the resolution.

Noble could also receive up to another US$200 million through a deferred payment clause that allows the firm to participate in the future value of the agriculture unit if it were to be listed or put up for a sale.

The group plans to use all of the proceeds from the transaction to pay down its debts.

Having valued Noble Agri at US$1.25 billion on its balance sheet earlier, it will book a non-cash loss of US$546 million from the transaction.

Asked by a shareholder why the firm was disposing of Noble Agri at a price lower than its book value, Mr Alireza said the purpose of the transaction was to improve its liquidity and earnings, as the losses from its agriculture unit had been a drag on the firm in recent years. "Right now, for all our stakeholders - whether it's our bond investors, our shareholders or our banks - the most important message to deliver to the market and most important priority is the strength of our balance sheet," he said.

"As long as there's confidence in the liquidity of the balance sheet, as long as there's confidence in the solvency of the company, everything will improve. Without that confidence it's hard for us to do our business."

Cofco had been given the exclusive right for five years to buy the rest of Noble Agri when it first acquired a 51 per cent stake for US$1.5 billion in 2014, Noble's chairman, Richard Elman, revealed in response to another question on whether the company had sought a better price or other buyers for the asset.

The lower price offered for the 49 per cent stake this time round was due to the weaker commodity environment, he said, adding that "we didn't have any other buyers".

Giving an update on the firm's lawsuit against Iceberg Research in Hong Kong, Mr Elman said there was a hearing two weeks ago. The next one will be held on Mar 6.

Iceberg, which first raised questions on Noble Group's accounting practices a year ago, said on Wednesday that it is preparing a fourth report on the commodity trader.

Meanwhile, costs of Noble's five-year credit default swaps (CDS) have increased to 3,615 basis points, indicating a 85 per cent of probability of default over the next five years, according to data provider Markit.

Liquidity of the CDS is weak, with bid-ask spreads widening since mid-December, said fixed income analyst Neil Mehta.

Noble's shares fell a further 1.8 per cent on Thursday to 27 Singapore cents. The stock has lost 32.5 per cent of its value so far this year.

This article was first published on Jan 29, 2016.
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