Noble Group, the Singapore-listed commodity trader, is planning a $300m bond issue as it looks to replace short-term credit lines with longer-term funding.
The trading house, which has been hammered by two years of questions over its accounting during a commodity slump, is looking to take advantage of a rally in Asian high-yield debt market to launch the issue.
But the bonds are still likely to carry a coupon of 9 per cent, according to people familiar with Noble’s plans. Cheap finance is essential to commodity traders that typically operate on razor-thin margins.
Noble declined to comment.
Last week, Noble announced a return to profitability in 2016, avoiding a second consecutive annual loss. It reported a net profit of $8.1m, flattered by a $91m tax credit, but suffered a large cash outflow of almost $600m as nervous lenders and counter parties reduced credit lines.
Once the largest independent commodity trader in Asia, the company was forced to shrink to survive in 2016, leading it to sell operations and tap shareholders for $500m.
Now, Noble is looking to reduce its use of unsecured revolving credit facilities, which have to be repaid or refinanced every one to three years. In 2017, the company faces $1.3bn of short-term debt maturities.
To that end, the company recently announced a $1bn borrowing facility secured against its holdings of commodities and is now preparing to launch a bond issue.
“The issuance of proposed notes, if successful, would be credit positive, because the proceeds will be used to refinance existing short-term debt and secure long-term funding, thereby partly alleviating pressure on its liquidity,” said Moody’s, the rating agency.
Moody’s said it had assigned a B2, or ‘highly speculative’ rating to the notes and said the company’s rating could be downgraded, citing $1.5bn of debt maturities in 2018.
“The negative outlook reflects uncertainty regarding Noble’s ability to rebuild and reposition its operations to improve profitability and cash flow amid the prolonged commodity downcycle and to cope with the still sizeable debt maturities in 2018.”