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Noble's credit extension sends shares higher but seen as short-term fix

FILE PHOTO: An employee is reflected on the wall as she walks past a signage of Noble Resources, a Noble Group subsidiary, at their premises in Singapore March 6, 2015. REUTERS/Edgar Su/File Photo

By Umesh Desai and Aradhana Aravindan

HONG KONG/SINGAPORE (Reuters) - A four-month credit extension for cash-strapped Noble Group Ltd sent the commodity trader's shares up almost 11 percent on Monday, though market watchers cautioned the extension was only temporary respite.

The Singapore-listed firm persuaded banks to extend a $2 billion credit line, due to be rolled over by the end of the week, but was asked to find a strategic investor, a person familiar with the matter told Reuters on Friday.

Noble declined to comment on the credit line.

Investors applauded the news, pushing Noble's stock as high as 10.8 percent in thin Monday trade, before paring gains to 7.7 percent, at S$0.35. But that price is in stark contrast to its 2011 peak of about S$17, before a drop in commodity prices and questions over accounting practices sent the stock plummeting.

The trader, which stood by its accounts, surprised investors this year with a first-quarter loss, after which credit-rating firms questioned Noble's ability to repay debt.

"Any roll over is significant, purely because it allows this company to function for another four months. But this (the banks) is just one of the different stakeholders," said trading strategist Nicholas Teo at KGI Securities Singapore. "It doesn't mean (Noble) is completely clear."

The commodity trader needs to show stability when reporting its next set of earnings, Teo said.

Noble bonds due in 2022 traded half a point lower at 37/39 cents on the dollar on Monday, while its credit default swaps implied a high default probability of 94 percent. 

"While it is certainly a positive-sounding headline, I am not sure it is the grand type of event that will arrest the negative momentum afflicting the company," said Todd Schubert, head of fixed income research at Bank of Singapore.

"First, it is only four months and gives the company limited breathing room. Also, we do not know either the pricing/terms of the extension."

Noble's refinancing schedule was a top concern in the market, reflected in its perpetual bonds trading at 15/17 cents on the dollar.

Coupon payments on the perpetual bonds are due later this month. Noble can defer payments without triggering a default under the bonds' terms, though the market would view non-payment negatively and seek greater compensation for holding Noble debt. Coupon payments on other bonds are due in July and September.

"With at least $1.5 billion in unsecured debt due in H1'18, it is clear that internal cash generation will be insufficient," said Rick Mattila, strategy head at MUFG Securities Asia.

"What little hope remains is based on some form of white knight investor coupled with asset sales, but clearly market pricing of bonds implies an expectation of default and restructuring at this point."

(Reporting by Umesh Desai in HONG KONG and Aradhana Aravindan in SINGAPORE; Additional reporting by Miyoung Kim; Editing by Edwina Gibbs and Christopher Cushing)