Noble slips on rating cut

Fitch in­di­cates de­fault pos­si­ble for com­midi­ties trader

The National - News - Business - - Inside Track -

Noble Group shares slid yes­ter­day on the first day of trad­ing af­ter Fitch Ratings cut the em­bat­tled commodities trader’s credit rating to a score in­di­cat­ing that a de­fault is pos­si­ble. The com­pany’s stock dropped nearly 3 per cent yes­ter­day early af­ter­noon in Sin­ga­pore af­ter a public hol­i­day for Eid Al Fitr on Mon­day. It ear­lier fell as much as 7.6 per cent.

Fitch slashed its rating late on Fri­day by two steps to CCC, its third down­grade since the mid­dle of last month. Fitch’s def­i­ni­tion for that rating says it in­di­cates “sub­stan­tial credit risk” and that “de­fault is a real pos­si­bil­ity.” The moves mark a re­ver­sal fol­low­ing a 63 per cent surge in Noble’s shares last week, when the com­pany said it re­mains in talks with po­ten­tial in­vestors af­ter agree­ing with lenders to ex­tend its US$2 bil­lion credit fa­cil­ity for four months.

The struggle to sus­tain the rally flags chal­lenges for the com­pany, in which Abu Dhabi fund Goldilocks in­vest­ment com­pany be­came a ma­jor holder last week, as it searches for a strate­gic in­vestor to re­store con­fi­dence fol­low­ing a col­lapse in its shares and bonds this year.

“The ex­ten­sion of Noble’s $2bn bor­row­ing base fa­cil­i­ties by 120 days from June 20 does not pro­vide ev­i­dence of medium-term fund­ing sta­bi­liza­tion,” Fitch said in its state­ment. The un­cer­tainty sur­round­ing the out­come of the fa­cil­ity may con­strain the com­pany’s flex­i­bil­ity in its trad­ing op­er­a­tions, ac­cord­ing to Fitch.

Fitch es­ti­mates that Noble had $900 mil­lion of cash on its bal­ance sheet end of May, and should be able to cover the $600m drawn un­der the bor­row­ing base fa­cil­ity. It added that the fa­cil­ity also gives Noble ac­cess to let­ters of credit, of which $1bn had been drawn. “The let­ters of credit are key tools to pro­vide credit en­hance­ment to sup­pli­ers,” said Fitch, adding that re­duced ac­cess would di­min­ish Noble’s ca­pac­ity to trade.

Noble did not im­me­di­ately re­spond to a re­quest for com­ment on Fitch’s down­grade.

The com­pany’s 6.75 per cent bonds due in 2020 were at 37.7 cents on the dol­lar, ac­cord­ing to prices com­piled by Bloomberg. They have fallen from 83.7 cents at the end of last year.

Edgar Su / Reuters

The cut was Noble’s third down­grade this month.

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