Noble Group liquidity crunch is temporary: Fitch Ratings says

Fitch Ratings said that the liquidity crunch at Noble Group is temporary and likely to improve.
Fitch Ratings said that the liquidity crunch at Noble Group is temporary and likely to improve. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - A liquidity crunch at Noble Group may prove to be temporary, according to Fitch Ratings, which said that the Singapore-listed commodity trader will probably generate about US$900 million (S$1.21 billion) in the coming months including proceeds from a recent rights issue.

Liquidity will improve as Noble Group gets US$500 million from the rights issue and the rest from working-capital reductions, Fitch Ratings said in a statement on Monday. The crunch of the second quarter won't persist and Noble Group will have sufficient liquidity this quarter, it said.

The Hong Kong-based trader, which is backed by China's sovereign wealth fund, has seen a two-year collapse in its shares as raw materials tanked, its accounting practices came under scrutiny and ratings agencies including Fitch cut the company's debt to junk. After posting a second-quarter loss and increase in net debt last week, Noble Group said its priority is seeking cash ahead of earnings. As part of that drive, it's selling a US unit, Noble Americas Energy Solutions, to raise further funds.

NAES Sale "The de-emphasis on business scale will remain until the sale of NAESbusiness is completed," Fitch said. "A significant reduction in Noble's business scale or Ebitda generation could put pressure on its ratings. We will evaluate how the sale affects the company and how proceeds will be utilised once the sale is completed." Ebitda typically refers to earnings before interest, taxes, depreciation and amortisation.

In the second quarter, Noble Group's so-called liquidity ratio totalled 0.5 times its inventory, down from 1.3 times at the end of the first quarter, Fitch said. That's expected to return to a level above 1 in the current quarter after the rights offering as well as cuts to working capital, according to Fitch.

Noble Group stock fell to the lowest since 2003 this month before the rights shares began trading. It has slumped 52 per cent in 2016 even as commodity returns have rebounded from the lowest in a generation in January. The shares traded 2.7 per cent lower at 14.4 Singapore cents at 2.38pm. in Singapore.