SINGAPORE - Standard & Poor's Ratings Services has cut its long-term corporate credit rating on Singapore-listed Noble Group to 'BB-' from 'BB+', with a negative outlook.
"We downgraded Noble because of the company's volatile earnings and high trade risk position, as reflected in its large marked-to-market loss in 2015," said S&P's credit analyst Cindy Huang.
"In our view, the loss weakens Noble's credit standing and relationship with banks, despite the company's near-term refinancing risk remaining manageable."
Noble last week posted is first annual loss in almost two decades of US$1.7 billion after it took a US$1.9 billion writedown.
Said Ms Huang: "The unexpected loss highlights the limited visibility and transparency around Noble's earnings. In our view, the company's profitability is highly volatile, given its complex physical contracts book and derivatives program.
"Noble's trading position is higher than we previously anticipated due to the unexpected asset impairment. The company has significant long-dated contracts that are not fully hedgeable and the value of which relies on input assumptions that are not market-observable.
"We cannot rule out further asset impairments, given the depressed commodity prices. We note that Noble's price assumptions on its long-dated contracts are now at levels that are much more aligned with market spot and short-term forward price. However, the company may not be able to adequately protect itself against future negative developments such as further price declines or counterparty defaults.
"The company's credit standing and banking relationships have weakened, in our view. Recent negative developments weaken the company's position in its discussions with banks and could affect financing terms, in our view.
"However, Noble's short-term liquidity risk appears manageable, in our view. We understand that the company is in well-progressed discussions with banks on refinancing its short-term credit facility due in May 2016.
"The negative outlook reflects the uncertainties around the details of Noble's refinancing," said Ms. Huang. "In light of difficult markets, further capital raising initiatives may be difficult for the company."
"We could lower the rating on Noble in the low probability but high risk event that the company's refinancing is not completed in the next few weeks. We may also lower the rating if Noble is not able to raise additional capital in the next 6-12 months."
S&P said it dould could upgrade the outlook to stable if Noble's liquidity stabilizes, which could happen if the company secures renewed credit facilities, raises additional capital, and demonstrates a track record of stable cash flow generation.