Noble able to manage increased collateral requirement, says Fitch Ratings

SINGAPORE - Credit rater Fitch Ratings said that Singapore-listed Noble Group increased collateral requirements following a series of credit events in 2015 is manageable given its improved liquidity following asset sales.

Fitch's statement on Thursday (Jan 7) came afer Noble shares tumbled in the morning to their lowest since 2008 amid a global commodity rout on fears over China's economy.

The stock slumped as much as 12 per cent, before trading 7.9 percent lower at 35 Singapore cents as of 2:17 pm local time, heading for its lowest close since October 2008. About 95 million shares changed hands, more than 1.8 times the intra-day average for the past three months, according to data compiled by Bloomberg.

"The share price volatility may persist, given the more muted outlook for the global commodities market," Carey Wong, an analyst at OCBC Investment Research, wrote in a note to clients on Thursday, quoted by Bloomberg. He cut his 12-month price target for Noble to 44 Singapore cents from 54 Singapore cents and kept his hold rating.

Noble lost almost two-thirds of its value in 2015, making it the worst performer on the Straits Times index last year, after attacks on its finances by critics including the anonymous Iceberg Research and short-seller Muddy Waters. The latest blow was the cut in its credit rating to junk by Moody's Investors Service on concerns over its liquidity.

Fitch wrote on Thursday that "A trading company like Noble could face increased collateral and/or security requirements from counterparties if the latter view that its credit profile has weakened. This could result in weakening of the company's liquidity position as the company will have to use more letters of credit (LCs) as forms of payment."

It added that some derivative contracts might require the posting of additional margins in the event of a credit rating downgrade. Also, the company's cost of finance from its bank lines could rise, or its available bank facilities could shrink.

But Fitch said it believes that the additional collateral requirements can be adequately covered by the company following its disposal of Noble Agri Limited.

Noble's management estimated in 2015 that the additional margin requirements from a credit rating downgrade would be in the range of US$100 million to US$200 million.

It has informed Fitch that the company has not breached this range, even with the recent downgrade of its ratings to junk.

Fitch said it will continue to monitor the factors affecting Noble's credit profile, noting that any significant increase in collateral needs or funding costs could result in negative rating action.