By Ese Erheriene, Jake Maxwell Watts and Sarah Kent
LONDON--Commodities trading giant Noble Group Ltd is winding
down its exposure to some metals and focusing on what it says is a
profitable energy business as it addresses the global resources
rout that has made the Singapore-listed firm a big focus for
investors looking for casualties amid the carnage.
Noble's share price has fallen more than 50% this year amid the
declines in the metals, coal and energy markets it trades in, and
as analysts criticize its accounting practices. This is making the
banks that finance Noble increasingly nervous about their exposure
to the firm, people familiar with the matter say. As Noble looks to
adapt to weaker markets, the firm is winding down its trading in
copper and zinc, according to other people familiar with
matter.
Noble's troubles come as shares in the other large commodity
trading groups fall and their credit strength is questioned after a
yearlong bear market in commodities ranging from copper to cotton
and oil. Last month, Glencore PLC's share price fell nearly 50% at
one point, causing the Swiss-based trading and mining firm to
announce plans to close and sell mines in a bid to shore up
confidence in its balance sheet.
Noble's chief executive, Yusuf Alireza, said in an interview
Friday that "we are making some tough decisions and relocating
capital from metals to energy."
"We're having a record year and, by a long way, a record year in
our oil businesses," he said.
Around 2000, the growth of China prompted a decade-long
commodities boom in which such large trading groups as Noble and
rivals Glencore, Vitol Group and Trafigura Beheer BV grew rapidly.
The companies generated billions of dollars in revenue a year,
moving vast shipments of crude oil, coal, copper and other
commodities around the world and profiting from price discrepancies
in how they were traded at different times and places.
By the time that boom peaked in 2011, Noble, which was founded
in the mid-1980s by British-born scrap-metal trader Richard Elman,
was worth nearly $12 billion. The company now has a market value of
around $2.4 billion.
Metals markets have taken a particular toll, as prices fall on
worries over both future demand from China and increased
supply.
The profit for Noble's metal division was all but wiped out in
the first half of this year amid a sharp slide in the premiums paid
for aluminum deliveries, its results show.
Three years ago the company said it wanted to take advantage of
market weakness to expand this business. Now Noble is winding down
some of its newer markets like copper and zinc, according to people
familiar with the situation.
Mr. Alireza said Noble is scaling back in metals but declined to
say which ones.
"Our cuts in metals are 100% consistent with what I said in the
second quarter results...moving capital from businesses that give
low return on capital to those that give high return on capital,"
he said.
A spokesman for Noble later said it is "not closing its copper
and zinc business and we continue to service our clients."
Among investors, key concerns have been whether these trading
groups will be able to access the short-term loans that are
essential to finance their business.
Many of the banks that Noble has used are standing by the
company, according to people at the banks. As are its largest
shareholders, including China Investment Corp. and Eastspring
Investments (Singapore) Ltd., part of Prudential PLC, which have
maintained or increased their stakes.
Bankers in Singapore and Hong Kong, where Noble has its head
office, say they won't yet pull out of loans they have already made
to the company, but if the noise around the company continues, that
may change. One banker described the situation as "delicate." Some
banks that have participated in revolving credit facilities for
Noble have recently been trying to sell parts of their exposure at
"a steep discount," according to two bankers familiar with the
situation.
Mr. Alireza said on Friday that talk about the firm having
difficulties raising cash is "entirely untrue." Noble is set to
announce that it has increased a $450 million credit facility in
the U.S. to $1.1 billion after a recent round of funding was
oversubscribed, he said.
But earlier this week Mr. Alireza said that Noble has had some
difficulty with its banking relationships since analysts began
questioning the company's accounting practices.
"We've lost some employees, we've lost some counterparties,
we've lost some marginal banks," he said.
Earlier this year, Iceberg Research accused Noble of inflating
gains on some of the derivative and long-term contracts it holds.
Noble denies the accusations and said in August that an independent
review carried out by PwC had found its way of valuing contracts
was in line with industry norms.
Rival traders said there are also concerns about the company as
a counterparty in metals trading. One Noble trader described the
company's London office as "dead," with little business and staff
making informal bets among themselves to pass the time.
Some employees have started asking for performance rewards to be
paid in cash rather than in share options because they are worried
about the long-term value of the company's stock, according to one
person at the firm. Mr. Alireza denied this.
Several senior employees have recently left the company,
according to people familiar with the matter.
Mr. Alireza said that the firm's London office had been the
target of cost-cutting, as Noble shrinks its metals business and
cuts back on expensive support roles in the city, which is a global
commodities trading center.
"London has been an office that has been challenged from a
profitability perspective," the CEO said.
Anjani Trivedi contributed to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com, Jake Maxwell
Watts at jake.watts@wsj.com and Sarah Kent at
sarah.kent@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 17, 2015 22:55 ET (02:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jun 2024 até Jul 2024
Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jul 2023 até Jul 2024