Noble 'has enough liquidity for short-term commitments'

Any weakening of Noble Group's liquidity profile, especially a further deterioration of committed undrawn facilities, is likely to result in negative rating actions, warns Fitch Ratings.
Any weakening of Noble Group's liquidity profile, especially a further deterioration of committed undrawn facilities, is likely to result in negative rating actions, warns Fitch Ratings. PHOTO: BLOOMBERG

Fitch Ratings keeps BBB-rating of the company with a stable outlook

Singapore-listed commodity trader Noble Group has sufficient liquidity to cover its short-term commitments in the next 12 months, Fitch Ratings said yesterday.

The liquidity, along with operational improvements, supports its rating, the credit agency said.

"However, any weakening in Noble's liquidity position could result in negative rating actions."

Fitch maintained its BBB-rating of Noble with a stable outlook.

Its statement comes after fellow credit agency Moody's said on Monday it is reviewing its rating of Noble for a potential downgrade, raising the possibility that the commodity trader could be cut to junk status.

The review was triggered by Noble's weaker-than-expected liquidity profile and its still-high leverage level as seen in its quarterly results announcement, which came out last week, Moody's said at the time.

Noble Group rebutted the claims on Tuesday and said it was confident of achieving Moody's targets.

Fitch said yesterday: "Noble's immediate liquidity need is the repayment of the US$458 million (S$646 million) senior notes due within the next half year, which it has the cash to do.

"Its US$2.5 billion short-term bank debt at (the end of the) third quarter remains at an elevated level as the company attempted to reduce finance costs by switching from capital financing to bank debt financing in 2015."

This should keep Noble's short- term debt at a higher level than the historical trend of about US$1.4 billion to US$1.6 billion prior to this year, Fitch noted.

But assuming the US$458 million senior notes are repaid with bank loans, total bank debt would still be sufficiently covered by committed facilities and senior debts due in 2018 and 2020, it added.

"Its unrestricted cash and equivalents of US$975 million plus the excess of committed facilities over its total bank debt of US$1.5 billion is 86 per cent of its inventory level, giving Noble liquidity headroom to cover any liquidity need arising from commodity price movements."

Noble obtained a US$1.1 billion facility last month as well, providing it with additional flexibility, it said.

"Noble's liquidity position is also mitigated by its readily marketable inventory of US$1.7 billion at (the end of the) third quarter, which can be used to repay debt if needed."

But the credit agency added that any deterioration of the company's liquidity profile, especially a further deterioration of committed undrawn facilities, is likely to result in negative rating actions.

"Fitch will closely monitor Noble's ability to improve its liquidity headroom, either through operating cash-flow generation, asset disposal or capital raising in the next six to 12 months."

It said it expects Noble to continue to improve its core operations in the fourth quarter to support the reduction of its net debt level.

Fitch may also reassess the firm's operational risks if losses in the metals segment persist, or the rise in operating income does not consistently match the increase in volume.

"Noble's positions in its trading operation are mostly hedged... any earnings should be positively correlated with volume," it said.

The energy segment's profitability may improve in this quarter, or the first quarter of next year, as energy prices tend to increase during the winter months, Fitch added.

A version of this article appeared in the print edition of The Straits Times on November 21, 2015, with the headline 'Noble 'has enough liquidity for short-term commitments''. Print Edition | Subscribe