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Derivatives

Noble goes local for arbitrage opportunities

After an absence of more than two years, Noble Group wasted no time in returning to the US dollar bond market after its rating was returned to a stable outlook in March. But while the dollar remains an important source of funding, the borrower plans to take increasing advantage of Asia’s growing local currency markets. Lorraine Cushnie reports.

The year 2013 has marked a new beginning for Noble Group. Not only did the Hong Kong headquartered, Singapore-listed commodities company make a confident return to the international bond market after a long gap, it also started diversifying into Asian local currencies. 

Noble’s absence from the dollar market had coincided with a worse ratings outlook for the company. In November 2011 Moody’s and Standard & Poor’s revised the outlooks for their respective Baa3 and BBB- ratings to negative after weaker than expected financial results raised concerns about the company’s leverage. 

Those negative outlooks remained in place until March 2013, when both agencies pushed them back up to stable after seeing Noble reduce its debt from $7.1bn in the third quarter of 2011 to $5.7bn as of December 2012. Not that the borrower was short of funds — in 2010 it had pre-funded some of its requirement by raising $1.5bn through dollar bonds, as well as remaining active in loans. 

But the company wasted no time in taking advantage of the changed rating outlooks to print a $500m five year deal in the same month as the rating agencies’ moves — duly paying a spread that was 40bp less than on its last five year deal, two years earlier, for a yield of 3.787%. The deal also came in the midst of a strong bull run for Asia dollar bond issuance. 

“Our return this year to the dollar bond market was somewhat tactical,” says Wildrik de Blank, group treasurer of Noble Group. “Throughout 2012, we didn’t see the same strong commodity price fundamentals, hence reducing the need for incremental financing. Moreover the bank markets were more conducive to funding. 

“This year, with our ratings outlook back to stable and the need to refinance a maturing bond, we issued the US dollar bond.”

Closer to home

If there is anything that underpins de Blank’s approach to funding, it is price — and this is especially true for local currency financing. Bankers reckon Noble will only consider local currencies if there are arbitrage opportunities. Although it has 34 offices in Asia — including China, India, Indonesia, Malaysia and the Philippines — its functional currency remains the US dollar. 

The company issued its first non-dollar bond in October last year — a MR300m ($90m) three year deal paying 4.5%. But it has stepped up its efforts in 2013, making debuts in offshore renminbi (CNH) and Thai baht as well as returning to the ringgit market. 

“I believe that the Asia bond markets will be increasingly important; these are growth markets,” says de Blank. “We accessed the ringgit, renmimbi and Thai baht markets this year, but as the commodity currency is the US dollar we swapped the proceeds back at corresponding dollar rates. These rates came out well below our dollar funding levels at the time.”

Noble’s dim sum debut did not appear to get the strongest response from investors, attracting just more than enough orders to cover the Rmb1bn ($162m) 4% three year deal. But its January timing made Noble the first investment grade corporate in the CNH market this year. 

Meanwhile, Noble’s Thai baht debut was also a landmark for the Asian Development Bank, being the first bond under the supranational’s credit guarantee scheme. Set up in November 2012, the Credit Guarantee and Investment Facility (CGIF) is designed to promote local currency issuance within southeast Asia. 

Being the first to take advantage of the new scheme meant that Noble had to take longer than usual to price the bond, but the issuer was rewarded for its patience. It pulled in an order book of Bt4.9bn ($152m) for the Bt2.85bn 3.55% three year deal and achieved an AA+ rating for the bond, which even with the cost of the guarantee meant that Noble made substantial savings. And it remains the only issuer to have used the CGIF. 

“It was worth doing, despite the limited available size [of $100m-equivalent],” says de Blank. “Rates in the end were very attractive again compared to the dollar pricing.”

Were it not for the CGIF, it is likely that Noble would have been shut out of the Thai baht market as the Thai Ministry of Finance has a strict approval process in place for foreign issuers. With the exception of the Lao People’s Democratic Republic, no borrower with a rating lower than A- has been permitted to issue.

De Blank prefers not to comment on Noble’s precise funding needs for the rest of the year, but the borrower’s funding tends to be split 50/50 between loans and bonds, plus or minus 10%. With around $2.5bn of loans issued this year and only $758m of bonds, Noble looks likely to be coming back to the bond market before the year is out.   

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