Noble shares tumble 9.1 per cent after credit rating cut

Troubled commodity trader Noble Group has suffered a fresh body blow, book-ending a horrible year for the Singapore-listed company.

Shares of Noble nosedived 9.1 per cent yesterday after Moody's Investors Service cut its credit rating to junk on liquidity concerns.

Noble shares tumbled four cents to 40 cents as traders digested Moody's verdict, sinking to its lowest level in about seven years. The stock, down a whopping 65 per cent so far this year, has been losing ground since research outfit Iceberg Research attacked the group's accounting practices in February, amid the collapse in commodity prices. It has also wound up as the biggest loser on the Straits Times Index.

Noble's dollar bonds due in 2020, its most liquid, suffered as well, dropping to their lowest point since they were issued in 2009.

Credit rating agency Moody's cited worries over Noble's liquidity, profitability and cash flow, especially as weak commodity prices could persist for years. It had earlier this month cut Swiss trading house Glencore to its lowest investment grade rating and placed BHP Billiton, the world's largest mining company, under review.

The agency also said Noble suffers from low profitability and negative cash flow from its core operations, and expects its ability to gain consistent access to bond markets to remain constrained.

Noble, in a statement yesterday morning, said: "While we respect Moody's decision, we are of the firm view that once the just announced Noble Agri deal closes, our rating metrics will substantially exceed those required of an investment grade credit."

Noble last week agreed to sell its remaining 49 per cent stake in its agriculture unit to China's Cofco Corp for at least US$750 million (S$1.06 billion) in a bid to reduce debt.

According to Reuters, Noble's chief executive, Mr Yusuf Alireza, noted in a separate letter to employees that the group's financials were improving and did not warrant the "unexpected" downgrade.

"We clearly feel this decision does not reflect the positive ratings impact of the recent Noble Agri deal, but rather follows on from their recent lowering of ratings across the entire commodity sector.

"It seems that Moody's credit committee were not able to differentiate between an environment that is clearly challenging for upstream players and one that opens up opportunities for an asset-light trader like ourselves."

IG market strategist Bernard Aw told The Straits Times that Moody's downgrade will first affect the company's financing costs, as lenders will have to consider a higher risk of default.

"Certain funds may also have to withdraw from the counter," he noted. "But as long as Noble is on the STI, it's not likely to be abandoned by fund managers."

Meanwhile, Standard & Poor's (S&P) said last month it is reviewing Noble's debt rating, which it may cut to junk on liquidity concerns.

Mr Aw believes there is "a high chance" that S&P will downgrade Noble, as it has already put the company's BBB- rating, its lowest investment grade, on a negative outlook. However, Fitch Ratings is unlikely to do the same, given that its rating for Noble still has a stable outlook.

The year ahead, he added, will "remain challenging" for Noble, given the lacklustre outlook for the commodity sector. "But Noble shares look to be able to continue holding the 40 cent line, which it has already done so several times despite the negative news through this year."

2015: A year of battles

For Noble Group, 2015 was a year packed with relentless punches - from detractors, short-sellers and media headlines.

Here is a look back at the woes the group encountered.

FEBRUARY

Little-known US-based research outfit Iceberg Research on Feb 15 issued the first of a number of critiques on Noble Group, claiming that it used accounting loopholes to avoid large impairments and to fabricate profit.

Noble rejected all allegations. But it posted a shock US$240 million (S$338 million) loss - its first quarterly loss in more than three years - for the fourth quarter to Dec 31 last year, owing largely to an unexpected US$438 million write-off.

MARCH

Iceberg released its third report on March 21, saying Noble's debts have been understated.

A few days later, Noble named former employee Arnaud Vagner as the man behind Iceberg and filed a lawsuit against him for having allegedly made "inaccurate, unreliable and misleading" claims.

APRIL

Muddy Waters, a research firm founded by short-seller Carson Block, joined the fray when it published a report questioning Noble's cash flow and management, while announcing it had taken a short position on Noble shares.

Noble issued a strong rebuttal. It embarked on a series of share buybacks, while promising greater transparency.

JUNE

Standard & Poor's revised its rating outlook on Noble from stable to negative, citing a weakened trading risk position that could spark greater earnings volatility.

AUGUST

An assurance review by PricewaterhouseCoopers found that Noble's practices comply with international requirements and standard industry practices, although there are areas for improvement.

DECEMBER

Moody's downgraded Noble's credit rating to junk.

This article was first published on December 31, 2015.
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