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Abu Dhabi, UAEMonday 24 September 2018

Noble Group's debt swells by nearly $1bn in H1

The company battles further decline as debt grows over financial constraints

Nobel Group, which was founded by Chairman-Emeritus Richard Elman, has lost more than 90 per cent of its market value since 2015. Bobby Yip / Reuters
Nobel Group, which was founded by Chairman-Emeritus Richard Elman, has lost more than 90 per cent of its market value since 2015. Bobby Yip / Reuters

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

Net debt expanded $945 million to $3.82bn at the end of June from $2.87bn at the end of 2016, the Hong Kong-based company said in a statement on Thursday that confirmed a second-quarter loss. The board has given priority to a reduction in indebtedness over the next two years, it said.

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More than two years into a crisis punctuated by accounting criticisms, a collapse in its securities and concern it may default, Noble 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 per cent lower at 35 Singapore cents before the earnings statement was released. The company, which was founded by Chairman-Emeritus Richard Elman, has lost more than 90 per cent of its market value since 2015.

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

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The valuation of the long-term contracts has come under particular scrutiny from Noble’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.” It added that more writedowns may be in store, saying: “Further additional non-cash valuation adjustments may be recorded.”

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