Noble Group 'Fighting for Its Life' as S&P Sees Default Risk
Comment of the Day

May 23 2017

Commentary by Eoin Treacy

Noble Group 'Fighting for Its Life' as S&P Sees Default Risk

This article by Jasmine Ng and Denise Wee for Bloomberg may be of interest to subscribers. Here is a section:

The Hong-Kong based trader’s troubles are deepening after two turbulent years that have been marked by losses, asset sales, and accusations of improper accounting that it has denied. Since surprising investors two weeks ago with a quarterly loss, the shares have tumbled to multiyear lows and the price of its bonds has fallen by more than half. S&P’s warning follows downgrades from Moody’s Investors Service and Fitch Ratings Ltd. in recent days.

There’s “potential that the company will face distress and a nonpayment of its debt obligations over the next 12 months,” S&P said in a statement late Monday as it cut the company’s ratings by three steps to CCC+. “The company’s capital structure is not sustainable,” S&P said.

The shares plunged as much as 32 percent to 40 Singapore cents, and were at 42 cents as the halt kicked in after just 36 minutes of trade on Tuesday morning. The stock has lost 75 percent this year, following a 44 percent drop in 2016 and 65 percent plunge the year before. The company’s 2020 bonds sank to an unprecedented 39.4 cents on the dollar.

Eoin Treacy's view

Investment banks concluded the commodity bull market is over a few years ago as they shuttered or sold-off trading operations en masse and largely exited the business. Noble Group is a major commodity trader, at least for the moment. Its current difficulties beg the question whether market participants are taking positions at odds to the company’s best interests in an effort to initiate a forced sale. 

The Continuous Commodity Index continues to be led lower by agricultural commodities. Oil’s rebound, the relative stability of industrial resources and uptick in precious metals have not been enough to conclusively break the decline evident since early January. The Index rallied yesterday to break this progression of lower rally highs but pulled back sharply today and needs to continue to hold the 400 area if recovery potential is to be given the benefit of the doubt. 

There is potential that Noble Group’s bankruptcy could act as a bull catalyst provided of course it has long positions in commodities currently under pressure. 


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