Noble Winds Down Metals Trading

LONDON—Commodities trading giant Noble Group Ltd N21 2.02 % 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.

Yusuf Alireza, chief executive officer of Noble Group, says the company is ‘making some tough decisions.’ ENLARGE
Yusuf Alireza, chief executive officer of Noble Group, says the company is ‘making some tough decisions.’ Photo: Nicky Loh/Bloomberg News

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 GLNCY -2.74 % 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.

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.

Write to Ese Erheriene at [email protected], Jake Maxwell Watts at [email protected] and Sarah Kent at [email protected]


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