Noble Group to plan loan backed by in­ven­to­ries

The Pak Banker - - COMPANIES/BOSS -

Noble Group Ltd., the em­bat­tled com­mod­ity trader, is work­ing on its largest ever loan backed by in­ven­to­ries as banks de­mand more se­cu­rity, forc­ing a dra­matic over­haul in the way it bor­rows. The shares dropped.

The Hong Kong-based com­pany is seek­ing $2.5 bil­lion in a so-called bor­row­ing base fa­cil­ity guar­an­teed by oil, with the po­ten­tial to in­crease the fi­nal size to $3.25 bil­lion if com­mod­ity prices rise over the next year, ac­cord­ing to peo­ple fa­mil­iar with the deal who asked not to be named be­cause the talks are pri­vate.

The fi­nanc­ing, al­ready em­ployed by most of Noble's com­peti­tors, sig­nals that banks are still will­ing to sup­port the junk-rated com­modi­ties trader, but they're tight­en­ing the leash by de­mand­ing guar­an­tees. Also, the use of se­cure fi­nanc­ing means ex­ist­ing bond­hold­ers and lenders may see them­selves rel­e­gated in po­ten­tial claims.

"This sug­gests that the com­pany is mov­ing in the right di­rec­tion where they're look­ing to im­prove the credit sit­u­a­tion," Nir­gu­nan Tiruchel­vam, an an­a­lyst at Reli­gare Cap­i­tal Mar­kets in Sin­ga­pore, said by phone. "The com­pany has al­ways main­tained that the in­ven­tory that they carry on their books can be used for fi­nanc­ing be­cause it's equiv­a­lent as cash. If it is the case that they can raise this money, it is a step in the right di­rec­tion and it will be a shot in the arm for the com­pany."

Noble pre­vi­ously re­lied mostly on un­se­cured loans, with just a small $450 mil­lion se­cured loan backed with oil stored in the U.S. This se­cured loan was in­creased to $1.1 bil­lion last year. The new one-year bor­row­ing base fa­cil­ity re­fi­nances the ex­ist­ing bor­row­ing base of $1.1 bil­lion and adds an­other so-called standby let­ter-of-credit fa­cil­ity also worth $1.1 bil­lion, some of the peo­ple said. Mit­subishi UFJ Fi­nan­cial Group is the the lead ar­ranger.

Noble de­clined to com­ment on its bor­row­ing plans.

Noble, which started mar­ket­ing the loans to other lenders in New York this week, is of­fer­ing to pay a rate start­ing at 1.6 per­cent­age points more than the Lon­don in­ter­bank of­fered rate, the same peo­ple said. The mar­gin is the high­est for any one-year loan Noble has raised since at least 2009 and dou­ble the 0.85 per­cent­age point spread Noble paid last year for a smaller se­cured loan. Still, the mar­gins of­fered are the low­est for any com­pany rated BB- in the past year, ac­cord­ing to Bloomberg data.

At the same time, Noble is still seek­ing to re­fi­nance a $1.2 bil­lion re­volv­ing credit fa­cil­ity, ac­cord­ing to peo­ple fa­mil­iar with the talks.

Its shares dropped as much as 8.9 per­cent to 41 Sin­ga­pore cents be­fore trad­ing at 43.5 cents at 9:53 a.m. lo­cal time on Wed­nes­day. Prices rose to a near 3-month high of 47.5 Sin­ga­pore cents on Tues­day, from a low of 26.6 cents in mid-Jan­uary. The price of its notes due 2018 was 60.3 cents on Wed­nes­day, up from a low of 41 cents in Jan­uary, in part helped by the re­fi­nance plans but also by a re­cov­ery in oil, iron ore and other com­modi­ties prices.

Noble Chief Ex­ec­u­tive Of­fi­cer Yusuf Alireza needs to re­fi­nance loan fa­cil­i­ties be­fore they ex­pire be­tween mid-April and the end of this year. Dis­cus­sions with banks are "well ad­vanced," he said on Feb. 25, as the com­pany posted its first an­nual loss since 1998.

The com­pany's shares were ham­mered in 2015 af­ter its ac­count­ing prac­tices, in­clud­ing how it val­ues long-term con­tracts, were crit­i­cized by the anony­mous group Ice­berg Re­search.

Ray Choy, re­gional head of fixed in­come and cur­rency re­search in Kuala Lumpur at RHB Re­search In­sti­tute, said that the re­cov­ery in com­mod­ity prices was the main fac­tor be­hind the rally in Noble's bonds.

"While re­fi­nanc­ing could oc­cur due to good ac­cess to cap­i­tal mar­kets, the credit fun­da­men­tals of Noble still war­rant some cau­tion," he said.

Noble Group is among the few com­mod­ity traders -- in­clud­ing larger com­peti­tors Glen­core Plc and Vi­tol Group BV -- that still fi­nances it­self via un­se­cured loans, with­out pledg­ing col­lat­eral, in­stead re­ly­ing on its cred­it­wor­thi­ness. Other trad­ing houses, in­clud­ing Trafigura Group Pte, raise credit by pledg­ing col­lat­eral such as cop­per and oil stocks.

The com­pany has been un­der pres­sure from banks to shift its fi­nanc­ing to se­cured fi­nanc­ing, par­tic­u­larly af­ter Stan­dard & Poor's and Moody's In­vestors Ser­vice cut the com­pany's debt rat­ing in De­cem­ber. For the lenders, a move to se­cured fi­nance also has some ad­van­tages. Un­der the Basel III rules put in place af­ter the 2008 fi­nan­cial cri­sis, banks have to set aside far more cap­i­tal for un­se­cured fi­nance than for se­cured loans.

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