Noble group’s net debt balloons as constraints hurt trading

SINGAPORE: Noble Group Ltd, the commodity trader that’s fighting to escape a spiral of decline, said net debt surged by almost US$1bil over the first six months as its business was hurt by constrained access to funds.

Net debt expanded US$945mil to US$3.82bil at the end of June from US$2.87bil at the end of 2016, the Hong Kong-based company said in a statement that confirmed a second-quarter loss.

The board had given priority to a reduction in indebtedness over the next two years, it said.

More than two years into a crisis punctuated by accounting criticisms, a collapse in its securities and concern it may default, Noble Group has been selling assets, reshuffling its senior team and seeking an investor.

The loss was flagged last month, when the company also announced the sale of its gas and power unit and said it was looking for buyers for its oil liquids business.

The reduction in Noble’s scale, with the company pulling back to its Asian roots, has spurred speculation it may not be able to service its obligations.

“The group has been facing significant credit constraints, and availability under its uncommitted bank facilities saw a material decline,” it said in the statement.

“This has impacted trading and earnings generation capacity.”

The company added that the constraints prevented it from taking advantage of profitable trading opportunities.

Noble Group’s shares closed 2.8% lower at 35 Singapore cents yesterday before the earnings statement was released.

The company, which was founded by chairman-emeritus Richard Elman, has lost more than 90% of its market value since 2015.

The rise in net debt was reported as the company said it lost US$1.75bil in the second quarter, the bulk of which was from writedowns on the value of long-term contracts, as well as losses from supply chains. Revenue fell 19% to US$10.1bil in three months to June from a year earlier.

The valuation of the long-term contracts has come under particular scrutiny from Noble Group’s critics, including Iceberg Research, a long-time foe that’s said they were inflated.

Over the years, the company has defended its accounting, and said the researcher, which doesn’t disclose the identity of its staff, is run by a disgruntled ex-employee.

Elman’s successor, Paul Brough, is heading up a strategic review. In the July profit warning, the company said the board concluded that as part of the review “a more conservative balance sheet valuation should be implemented.”