Noble Group Shares Plunge After S&P Flags Risks of a Default

(Bloomberg) -- Noble Group Ltd. could default on its debt over the next year as the embattled commodity trader spirals further into distress, according to S&P Global Ratings, which cut its long-term rating three notches to CCC+. The shares plunged in Singapore to the lowest since 2001 while its bonds steadied.

“The negative outlook on Noble reflects the potential that the company will face distress and a non-payment of its debt obligations over the next 12 months,” S&P said in a statement after the close of trade in Singapore on Monday. The company's stocks and bonds have plunged recently on concern its estimated liquidity isn't enough to cover debt due by mid-2018.

Noble Group declined to comment, then requested a trading halt pending an announcement.

The Hong-Kong based trader's troubles are deepening after two turbulent years that have been marked by losses, asset sales, and accusations of improper accounting that it has denied. Since surprising investors two weeks ago with a quarterly loss, the shares have tumbled to multiyear lows and the price of its bonds has fallen by more than half. S&P's warning follows downgrades from Moody's Investors Service and Fitch Ratings Ltd. in recent days.

“We downgraded Noble because we believe the company's capital structure is not sustainable,” S&P said. The ”refinancing of its large upcoming maturities will depend on the willingness of its lenders and counterparties," it said.

On Monday, the shares fell 6.4 percent in Singapore before the S&P downgrade, and its bonds dropped as Reuters reported Sinochem Group is no longer pursuing an investment. On Tuesday, the stock sank as much as 32 percent to 40 Singapore cents, prompting an exchange query, and traded at 42 cents at 9:36 a.m., immediately before the request to halt trading. The 2020 bonds rose 0.06 cent on the dollar to 41 cents, according to Bloomberg-compiled prices.

Major Maturities

S&P said that Noble Group has three major maturities over the next 12 months, listing $656 million due in 2017, of which $620 million are borrowing-base facilities due in June 2017; $379 million under a medium-term note program due in March 2018; and $1.1 billion in revolving credit facilities due in May 2018. Beyond that, there are bonds due in 2020 and 2022.

“Over the next three years, it's got huge amounts of debt maturing and right now the company is deeply trapped, unable to make any profit,” Margaret Yang, a strategist at CMC Markets in Singapore, said by phone. A potential default over the coming year is “totally possible,” according to Yang.

Noble Group is seeking a new $2 billion credit facility from its lenders before the $620 million in loans matures under the existing facility next month. “Conversations with the banks are ongoing,” Chief Financial Officer Paul Jackaman said earlier this month.

In its assessment, Moody's highlighted a $900 million gap between estimated liquidity headroom of about $1.2 billion and the $2.1 billion in debt due by the middle of next year. Fitch said while Noble Group has adequate funds to cover maturities in 2017, it'll need to source external financing in 2018.

Noble Group's new chairman, Paul Brough, has been tasked with leading a review after he was named to the post this month, replacing founder Richard Elman. “The new chairman is considering assets sales and other strategic options, but there is limited visibility on the plan,” S&P said.

--With assistance from David Yong Lianting Tu and Sandra Tsui

To contact the reporter on this story: Jack Farchy in London at jfarchy@bloomberg.net.

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, Jake Lloyd-Smith, Jason Rogers