Noble cut to junk by Moody's as commodity rout deepens, shares tumble

The move is a blow to Noble's efforts to retain its investment grade rating and slash debt by selling assets.
The move is a blow to Noble's efforts to retain its investment grade rating and slash debt by selling assets.PHOTO: REUTERS

NEW YORK (REUTERS) - Moody's Investors Service downgraded its credit rating on Singapore-listed Noble Group on Tuesday (Dec 29) to junk status with a negative outlook due to concerns over the commodity trader's liquidity, profitability and cash flow.

In a blow to the company's efforts to retain its investment grade rating and slash debt by selling assets, Moody's cut Noble's senior unsecured bond ratings to Ba1, which represents junk status, from Baa3 and assigned a Ba1 corporate family rating to Noble.

Shares in Noble fell on the news when markets opened on Wednesday. The counter were down 6.8 per cent at 41 cents as at 1:36 pm. Noble shares have lost 63 per cent this year, making them the biggest losers on the Straits Times Index.

Moody's said in its statement that the company was put on review for possible downgrade in mid-November.

The worsening year-long rout in commodities, which has punished prices of raw materials that Noble handles from oil to copper, has overshadowed cost-cutting plans and will likely hurt access to funding and challenge its profitability, it said.

"The downgrade of Noble's ratings reflects Moody's concerns over the company's liquidity," Joe Morrison, a Moody's vice president and senior credit officer, said in the statement.

The ratings reflect low levels of profitability and consistent negative free cash flow from core operating activities, which exclude proceeds from asset sales.

"The downgrade also reflects the uncertainty as to whether or not these factors can be improved sustainably and materially, given our expectations of a prolonged commodity downcycle, and the consequent negative sentiment impacting Noble and commodity traders in general," Mr Morrison said.

A week ago Noble sold its remaining stake in its agricultural trading business for US$750 million in cash as it seeks to cut debt, shore up its balance sheet and hold onto its investment grade credit rating.

On Tuesday, Noble said it still believed the agricultural sale would put its financial metrics in excess of those required of an investment grade credit. Debt stood at US$4.2 billion at end-September.

"It is unfortunate that this transaction has seemingly, in our view, been outweighed by Moody's negative view of the commodity producer segment," Noble said.

Shares in Noble have shed around two-thirds of their value since mid-February when blogger Iceberg Research alleged the company was inflating its assets by billions of dollars by not fairly representing the value of its commodity contracts.

Noble rejected the claims and board-appointed consultant PricewaterhouseCoopers found no wrongdoing in a report published in August.

It has investment grade ratings with the other two major agencies, Standard & Poor's and Fitch.