Noble shares plunge after downgrade by third agency

Price closes at 42 cents after Standard & Poor's rating and report on investor pulling out

Beleaguered Noble Group plunged 31 per cent at the opening bell yesterday after a third credit-rating agency downgraded the embattled commodities trader and warned of default risks within a year.

The downgrade by Standard & Poor's and a report that a strategic investor may have walked away sent Noble shares crashing to 40.5 cents, prompting a query from the Singapore Exchange.

The counter was at 42 cents before a halt kicked in after just 36 minutes of trade, pending the release of an announcement.

Noble has nosedived 76 per cent so far this year, following a 44 per cent drop last year and a 65 per cent plunge the year before. Its market capitalisation has shrunk to a mere $551.4 million from around $9.6 billion in early 2015 before Iceberg Research questioned its accounting practices as it battled a commodities downturn.

Not helping sentiment was a Reuters report claiming that Chinese state-owned company Sinochem was no longer pursuing an investment in the trader, owing to concerns over its finances.

Sinochem turned cautious on Noble after unexpected first-quarter losses and warnings by outgoing chairman Richard Elman that it would not be profitable for the next two years, the report said.

Earlier this month, Noble reported a surprise loss of US$129 million (S$179 million) for the first quarter, compared with a US$40 million profit a year earlier. It blamed its loss on challenging market conditions and dislocations in the coal market.

ST GRAPHICS

There is "potential the company will face distress and a non-payment of its debt obligations over the next 12 months", S&P said in a statement on Monday as it cut the company's ratings to CCC+ from B+.

"The negative rating outlook reflects the potential that Noble's cash flow and profitability will remain weak for the next 12 months, with the risk of non-payment of its debt obligations due to weakened access to funding... The company's capital structure is not sustainable," the rating agency said.

S&P's warning follows downgrades from Moody's Investors Service and Fitch Ratings. Moody's downgraded Noble to junk territory on Monday last week and Fitch cut its long-term rating from BB- to BB+ on Wednesday last week.

UNSUSTAINABLE

The negative rating outlook reflects the potential that Noble's cash flow and profitability will remain weak for the next 12 months, with the risk of non-payment of its debt obligations due to weakened access to funding... The company's capital structure is not sustainable.

STANDARD & POOR'S

"Noble is fighting for its life now," Mr Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group, told Bloomberg. "We're not sure how long it can sustain without a white knight."

Following years of setbacks, marked by losses, asset sales, and credit-rating downgrades, the company has directed new chairman Paul Brough to review its strategic options.

A version of this article appeared in the print edition of The Straits Times on May 24, 2017, with the headline 'Noble shares plunge after downgrade by third agency'. Print Edition | Subscribe