Noble Group ‘confident’ of meeting Moody’s targets in review

The stock remains worst performer on the Straits Times Index this year

PUBLISHED : Tuesday, 17 November, 2015, 6:32pm
UPDATED : Tuesday, 17 November, 2015, 6:32pm

Noble Group says it will be able to meet targets from Moody’s Investors Service after the agency placed the company’s ratings under review for a downgrade, raising the possibility the commodity trader may be cut to junk. The stock fell to a five-week low.

“We have always achieved our investment-grade rating targets,” Noble spokesman Stephen Brown said on Tuesday, citing the company’s quarterly results last week, including a return to positive cash flow. “We remain confident of achieving Moody’s targets.”

The rating review is triggered by Noble’s weaker-than-expected liquidity profile and its still-high leverage
Joe Morrison, Moody’s

The review by Moody’s comes as commodity companies are grappling with slumping raw-material prices and Noble faces the additional challenge of fending off criticism of its accounting practices. Last week, Noble reported an 84 per cent drop in quarterly profit and said it was looking to raise about US$500 million through asset sales or from a strategic investor. Moody’s said the results showed the company’s liquidity was still under pressure.

“The rating review is triggered by Noble’s weaker-than-expected liquidity profile and its still-high leverage,” Moody’s vice-president and senior credit officer Joe Morrison said on Monday. The review over the next two to three months would focus on Noble’s ability to improve its liquidity headroom and cash flow generation, raise capital and reduce leverage, Moody’s said.

Noble shares sank 3.5 per cent to 42 Singapore cents at the close, the lowest since October 8. The stock remains this year’s worst performer on the Straits Times Index after losing 63 per cent.

“Investors could have potentially already priced in the possibility of a downgrade,” said Bernard Aw, a strategist at IG Asia in Singapore. “Any fallout from this actual move by Moody’s may not actually elicit much downside impact.”

At present, Moody’s rates Noble at Baa3, the lowest investment grade, while Standard & Poor’s has a BBB- rating, one notch above junk. The negative industry environment may continue to have an adverse effect on Noble’s liquidity and operations, Moody’s said on Monday. The Bloomberg Commodity Index traded on Tuesday near the lowest since 1999.

Noble chief executive Yusuf Alireza said in August that while it would do what was required to support the investment grade, it was not required for the business. Last week, Alireza told analysts the impact of a potential downgrade would be insignificant in terms of the additional margin required, estimating the sum at between US$100 million and US$200 million. He has repeatedly rejected the criticism of its accounts, while pledging to increase transparency.