SINGAPORE (BLOOMBERG) - Singapore-listed Noble Group said that it will be able to meet targets from Moody's Investors Service after the agency placed the company's ratings under review for a downgrade, raising the possibility the commodity trader may be cut to junk. The stock pared initial gains to trade unchanged.
"We have always achieved our investment-grade rating targets," spokesman Stephen Brown said in an e-mailed response to questions on Tuesday (Nov 17), citing the company's quarterly results last week, including a return to positive cash flow. "We remain confident of achieving Moody's targets."
The review by Moody's comes as commodity companies are grappling with slumping raw-material prices and Noble faces the additional challenge of fending off criticism of its accounting practices. Last week, Noble reported an 84 per cent drop in quarterly profit and said it was looking to raise about US$500 million through asset sales or from a strategic investor. Moody's said the results showed the company's liquidity is still under pressure.
"The rating review is triggered by Noble's weaker-than-expected liquidity profile and its still-high leverage," Joe Morrison, vice president and senior credit officer, said in a statement on Monday after the close of trade. The review over the next two to three months will focus on Noble's ability to improve its liquidity headroom and cash flow generation, raise capital and reduce leverage, Moody's said.
Noble Group shares initially gained as much as 3.5 per cent to 45 Singapore cents, then dropped to trade at 43.5 cents at noon local time, level with Monday's close. The stock remains this year's worst performer on the Straits Times Index after losing 62 per cent.
"Investors could have potentially already priced in the possibility of a downgrade," said Bernard Aw, a strategist at IG Asia Pte in Singapore. "Any fallout from this actual move by Moody's may not actually elicit much downside impact."
At present, Moody's rates Noble at Baa3, the lowest investment grade, while Standard & Poor's has a BBB- rating, one notch above junk. The negative industry environment may continue to have an adverse effect on Noble's liquidity and operations, Moody's said in the statement on Monday. The Bloomberg Commodity Index traded on Tuesday near the lowest since 1999.
Chief executive officer Yusuf Alireza said in August that while Noble will do what's required to support the investment grade, it's not required for the business. Last week, Mr Alireza told analysts the impact of a potential downgrade would be insignificant in terms of the additional margin required, estimating the sum at between US$100 million and US$200 million. The CEO has also repeatedly rejected the criticism of its accounts, while pledging to increase transparency.