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(Bloomberg) -- Noble Group Ltd. warned of a more than $1 billion third-quarter net loss as it agreed to sell most of its oil business to Vitol Group, prolonging the embattled commodity trader’s survival while highlighting the challenges ahead.
Details of the sale failed to give much clarity on how much Hong Kong-based Noble Group would ultimately receive from Vitol for its prized oil-trading unit, while the likely third-quarter results highlighted the company’s struggle to return to profitability as it offloads assets to repay debt.
“They’re still fighting to survive,” Nicholas Teo, a trading strategist at KGI Securities (Singapore) Pte, said by phone.
The company agreed to extend a covenant waiver on a $1.1 billion revolving credit facility until just Dec. 20, highlighting how lenders are keeping Noble on a tight leash as analysts say a debt restructuring looks likely. At the same time, its continuing business -- largely coal and iron-ore trading in Asia -- is likely to report a net loss of up to $100 million for the third quarter.
While Noble’s stock slumped as much as 12 percent in Singapore, extending a more than 90 percent retreat since questions over its financial reporting emerged in early 2015, debt investors reacted more positively.
Bonds due in 2020 rose 4.2 percent to 39.6 cents on the dollar. Prices had fallen last week after Vitol Chief Executive Officer Ian Taylor had said that the deal was "very complicated," raising the prospect that the two sides wouldn’t reach deal.
S&P Global Ratings said the deal with Vitol didn’t change the risk of Noble defaulting.
While the company has defended its accounting, its bonds have tumbled to distressed levels as it has written down the value of its long-term commodity contracts, ousted senior managers and reported a string of trading losses.
Read more: Bloomberg Gadfly’s take on the Noble announcements
Noble Group said that based on its end-June accounts it would have received net proceeds of $582 million from the oil unit deal after paying back borrowings under a secured credit facility.
But that figure included proceeds from the earlier sale of its gas-and-power unit, the company said, and was prior to a third quarter in which the business was “adversely impacted” by “capital constraints.” Based on the end-June number, the company would report a $525 million loss on the sale.
What’s more, the deal is complex: Vitol will pay $174 million of the closing price into three separate escrow accounts, Noble Group will carve out some oil deals and wind them down separately, and the final price is contingent on several side deals.
Vitol said it had taken advice from three different law firms. Highlighting the risk that the deal could fall through before a final agreement is signed, Noble Group agreed to pay a break fee of $40 million in case the sale was scrapped for reasons including its bankruptcy.
The deal for the oil business, one of Noble’s most valuable remaining assets, follows the sale of a smaller gas-and-power trading unit to Mercuria Energy Group Ltd., which was completed last month.
“The operating environment continues to be challenging,” Noble said. “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.”
Here are some additional details from the company’s two statements on Monday:
- A total net loss of $1.1 billion to $1.25 billion expected in the third quarter
- Those figures include an adjusted net loss from continuing operations of $50 million to $100 million, as well as exceptional losses including non-cash items of $1.05 billion to $1.15 billion
- Exceptional losses include a change in how Noble accounts for its stake in Yancoal following the latter’s equity raising in August. Noble had valued the stake at $180 million at the end of 2016, but its market value on Monday was just $12 million
- Lenders agreed to a two-month extension of a waiver related to a revolving-credit facility to Dec. 20
- Proceeds from the oil sale and earlier gas-unit sale are expected to be enough to retire the Noble Americas Corp. borrowing base revolving facility, and the Noble Clean Fuels Ltd. borrowing base revolving facility
(Updates with bond prices in fifth paragraph.)
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