Noble Group announces dramatic shrink-to-survive measures, warns of $1.8bn loss
Commodity trader Noble Group has announced a dramatic shrink-to-survive programme of asset sales and a tie-up with rival Mercuria, as the under fire commodity trader warned it will post a loss of up to $1.8bn in the second quarter.
The Singapore-listed group, founded by British-born trader Richard Elman 31 years ago, said on Wednesday that a strategic review of the business – which has been hammered for more than two years by questions about its accounting and weak commodity markets – had concluded that only drastic action can keep the company going.
The company said:
The Board believes that the commodities trading industry will continue to face both challenging conditions and realignment as established participants face a low margin trading environment against the backdrop of changing banking and regulatory landscapes and the potential for digital disruption.
The Group, therefore, is positioning itself for continuing stress in the sector, which the Board believes is likely to lead to industry consolidation.
Among the announcements, the company revealed:
* A formal sales process of its Global Oil Liquids business, for which Noble says there is a “short list of potential buyers”
* The sale of Noble Americas Gas and Power Corp to Swiss-based commodity trader Mercuria’s US arm for $248m.
* The remaining Noble business, which will focus on coal, metals, carbon steel materials, freight and LNG, is entering into “partnership” with Mercuria to help improve its access to financing and to seek “strategic alliances in Asia”.
* Head count reductions from approximately 900 currently to 400
* Focus on repaying debts, including winding up secured credit lines related to its oil operations
* Further asset disposals outside North America expected to total between $800m to $1bn
* Reserving $660m against profits booked on long-term commodity contracts (Level 3 net fair value gains)
* Warned of an adjusted net loss for the second quarter of $450m to $500m, adjusted for exceptional items
* Including exceptional items, such as the reserves on long-term supply contracts, this could reach $1.8bn in total losses