Shrivelled commodity trader Noble Group insists that it will be able to survive and thrive just as soon as it restructures its debts and gains access to cheap trade finance. Both are now within reach. But heavy losses in 2017 should cast doubt on the merits of saving “new Noble”.
The Singapore-listed group’s plan to stave off insolvency involves a debt-for-equity swap that will halve its $3.4bn outstanding senior debt and hand control over to creditors. The ultimate goal is to draw a line under the losses and write-offs, not to mention controversial sales and accounting techniques, of the last three years.
Securing a three-year $700m trade finance facility from ING will help, even though it depends on restructuring. Noble needs affordable credit to trade commodities for its clients. Yet in flagging up losses in the fourth quarter of between $1.73bn and $1.93bn the group offered up another reminder of its fragility, showing why its 2020 bonds still trade at less than 50 cents on the dollar.
The quarterly result means Noble has totted up a record $5bn loss in 2017. Most comes from mark-to-market reported losses on derivatives. Continued losses at the core coal and iron ore trading business on which Noble intends to focus in future are another worrying feature of the result. Noble needs to both drastically slim down that business and make operating profits from it.
Even after a restructuring, this newly separated “Trade Co” unit will carry debt of just less than $1bn — equal to a steep five times predicted earnings before interest, tax, depreciation and amortisation. No takeover of Noble is currently likely.
If Noble is starting afresh, why hand executives such generous incentives— up to a fifth of the company — to stick around? This puts them in a better position than even perpetual bondholders. That looks inequitable. Boss Will Randall came from the hard commodities division, which has suffered large writedowns on contracts. New Noble may not be so new after all.
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