Noble slips on rating cut
Fitch indicates default possible for commidities trader
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.
The cut was Noble’s third downgrade this month.