S&P joins Moody's in cutting Noble's credit rating

Standard & Poor's has lowered Noble Group's local and foreign currency ratings to BB+ from BBB-.
Standard & Poor's has lowered Noble Group's local and foreign currency ratings to BB+ from BBB-. PHOTO: REUTERS

Noble Group sought to reassure investors of its healthy rating metrics after two of the three top rating agencies downgraded the commodity trader's credit status to junk within weeks of each other.

Standard & Poor's (S&P) yesterday lowered the group's local and foreign currency ratings to BB+ from BBB-, not long after Moody's took a similar stance last December, adding to the trader's troubles amid a rout in raw materials.

The cuts came even after Noble Group agreed to sell the rest of its agricultural unit to China's Cofco Corp for at least US$750 million (S$1.1 billion) to bolster its finances and reduce debt.

However, Fitch yesterday said the Singapore-listed group's collateral requirements are manageable with its improved liquidity due to the disposal of its stake in Noble Agri Limited.

In a statement yesterday, Noble welcomed Fitch's rating and said it was confident the stake sale would be approved by shareholders and be closed by the end of February.

"We would like to reiterate that once the proposed Noble Agri deal closes, our rating metrics will substantially exceed those required of an investment-grade credit," it added.

Noble, Asia's top commodity trader, lost almost two-thirds of its value in 2015, making it the worst performer on Singapore's benchmark Straits Times Index, after a year of attacks on its finances by critics, including the anonymous Iceberg Research and short-seller Muddy Waters LLC. Its shares had tumbled to the lowest since 2008 on Wednesday as the collapse in raw materials deepened, and the stock closed 9.21 per cent lower at 34.5 cents yesterday.

"The share price volatility may persist, given the more muted outlook for the global commodities market," Mr Carey Wong, an analyst at OCBC Investment Research, wrote in a note.

He cut his 12-month price target for Noble to 44 cents from 54 cents and kept his "hold" rating.

In its note, S&P said "the current depressed commodities markets and heightened risk aversion by lenders could complicate the company's fund-raising plans for the next few months".

The downgrades will test chief executive officer Yusuf Alireza's view that while the investment-grade rating was desirable, it was not required for the business. He said last November the firm would raise over US$500 million via asset disposal and also cut its metal stockpile, while reducing headcount by 15 per cent to achieve an annual cost saving of US$70 million.

Noble said the rating change is not expected to have a material impact on its operations. "To date, the increased collateral calls have been immaterial and below the previously indicated range of US$100 million to US$200 million," its statement said.

A version of this article appeared in the print edition of The Straits Times on January 08, 2016, with the headline 'S&P joins Moody's in cutting Noble's credit rating'. Print Edition | Subscribe