Noble shares slump after S&P warns it may cut its debt rating to junk on liquidity concerns

A Noble Group sign is pictured at an event in Singapore.
A Noble Group sign is pictured at an event in Singapore.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Shares of Noble Group, the commodity trader seeking to preserve its investment-grade status, fell in Singapore on Tuesday (Nov 24) after Standard & Poor's joined Moody's Investors Service in reviewing the company's ratings amid concern about its liquidity.

"I would say there's more than a 50 per cent chance that Noble will be downgraded to junk," Trung Nguyen, a Singapore-based credit analyst at Lucror Analytics Pte, said on Tuesday. "That will definitely affect their credit line and access to capital."

The shares lost as much as 3.7 per cent to 39.5 Singapore cents, the lowest level in more than a month, and traded at 40 cents at 11:06 am local time. Noble Group stock remains this year's worst performer on the Straits Times Index after losing 65 per cent.

The review by S&P comes as commodity companies grapple with slumping raw-material prices and Noble faces the additional challenge of fending off criticism of its accounting.

S&P said on Monday it's placing Noble's BBB- rating, the lowest investment-grade debt score, on review with negative implications. Noble said the same day it was confident it would be able to bolster its balance sheet, allowing it to remain investment-grade and deliver further improvements this quarter.

"We are committed to raising capital through various funding options, including asset disposals and partnerships with strategic investors, to strengthen our balance sheet and enhance liquidity," Noble said on Monday. "Our third-quarter achievements will continue into year-end."

Noble said it reported positive operating cash flow in the quarter for the first time in more than a year, and that a turnaround in sugar could support its performance into 2016. While net income dropped 84 per cent in the period, the trader said it was looking to raise about US$500 million through asset sales or from a strategic investor.

Chief executive officer Yusuf Alireza said in August that while Noble will do what's required to support the investment-grade rating, it's not required for the business. After Moody's announced its ratings review, Noble said that it's confident of meeting that assessor's targets.

Noble's plan to raise at least US$500 million could help restore liquidity and financial leverage, which will be key to maintaining its current rating, according to S&P. The company has a good track record of raising capital through recycling assets and attracting new investors, it said.

"The liquidity position of Noble has deteriorated, in our view, because of a reduction in the Hong Kong-based commodity trader's adjusted readily marketable inventory and committed undrawn credit facilities," said S&P, which aims to resolve the CreditWatch listing within three months.

Moody's said Nov 16 that it may cut Noble's rating to junk if the trader's liquidity position doesn't improve in the next one to two quarters. Fitch Ratings said last week that while Noble Group's liquidity was just enough to support its BBB- score at present, any deterioration would probably trigger a negative ratings action.