LDN - Business

Noble Group to sell oil liquids unit to Vitol, flags $1.2 billion loss

[October 23, 2017] By Anshuman Daga

SINGAPORE (Reuters) - Struggling commodities trader Noble Group agreed to sell its Americas-focused oil trading business to Vitol for about $580 million as part of a debt-cutting strategy, and warned of a big loss for its third quarter.

Monday's move came after Reuters reported late on Friday that Vitol, the world's largest oil trader, was nearing a deal to buy Singapore-listed Noble's oil liquids unit.

Noble, whose founder Richard Elman took advantage of a commodities bull run to build it into one of the world's biggest traders after starting it in 1986, is shrinking to an Asian-centric company focused on its core coal trading, LNG and freight businesses.

It is slashing jobs and selling assets to reduce debt and win support from lenders after a crisis-wracked two years. In July it agreed to sell its smaller gas and power business to Mercuria.

"I guess the question is when are they going to basically turn around their business, which is quite key. If they can actually provide more details, what sort of assets they can still sell, that would be great," said Annisa Lee, Nomura's head of Asia ex-Japan's flow credit analysis.

Hong Kong-based Noble was plunged into crisis in February 2015 when Iceberg Research questioned its accounts, and then the company was hit by a commodities downturn.

While Noble has stood by its accounts, the upheaval triggered a share price collapse, credit downgrades, a series of writedowns, as well as fund raising and management changes. Noble's market value has plummeted to less than $400 million from $6 billion in February 2015.

Noble said gross proceeds from the sale of its oil liquids business would be $1.4 billion, and after deducting debt of about $836 million, cash proceeds would be about $580 million.

"It gives the company some positive momentum going into a liability management exercise and it likely raises recovery realizations under a restructuring scenario modestly," said Todd Schubert, fixed income analyst at Bank of Singapore.

In July, Noble announced an up-to-$1 billion disposal plan for assets outside North America over the next two years as Chairman Paul Brough, a restructuring specialist appointed in May, sought to tackle Noble's more than $3 billion of debt.

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The company logo of Noble Group is displayed at its office in Hong Kong, China January 22, 2016. REUTERS/Bobby Yip

"Conservative liquidity management and constraints placed on the group's access to trade finance lines led to disruption costs and prevented the group from taking advantage of profitable trading opportunities," the company said on Monday.

Its stock fell 10 percent on Monday, extending losses to 80 percent this year.

In a one-line statement, Vitol U.S. Holding Co. confirmed it had agreed to acquire Noble Americas Corp subject to certain conditions precedent and referred to Noble's statement on the deal.

Noble bonds due 2020 were higher by two points at 39/41 cents on the dollar. As recently as April, the 2020s were trading around 97 cents on the dollar.

BILLION DOLLAR LOSS

Noble warned of a total net loss of $1.1 billion to $1.25 billion in the three months ending September, citing non-cash losses and underlying trading results. This follows a $1.75 billion net loss reported in April-June.

Noble has been locked in negotiations with its core lenders to support a $2 billion credit facility, secured on its inventories and working capital.

"Whilst no assurance can be given as to the outcome of these discussions, the group believes that these are open and constructive, and are moving forward," it said.

In August, ratings agencies S&P and Moody's cut their credit ratings on Noble, citing high default risks.

Noble is a big player in the global physical oil market, trading crude and refined products. But its operations shrank this year due to higher prices and liquidity constraints. The company has blending and wholesale capabilities in North America and the Caribbean, alongside long-term storage leases globally.

A purchase of Noble's oil liquids business will reinforce Vitol's position as a leading oil trader.

(Reporting by Anshuman Daga in SINGAPORE; Additional reporting by Umesh Desai in HONG KONG; Editing by Stephen Coates)

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