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| Noble Energy, Inc. |
S&P puts Noble on review for possible downgrade to ‘junk’
Neil Hume, Commodities Editor
Noble Group could lose its investment grade credit rating by the time of its annual results in February unless the Hong-Kong-based commodity trader manages to raise $500m from a strategic investor or asset sale.
That is the view of Standard & Poor’s, which has followed rival rating agency Moody’s and put Noble on review for a possible downgrade to “junk”.
“We believe the Noble management’s commitment to raise at least $500m in new capital could help restore the company’s liquidity position and financial leverage, which will be key to maintaining the current rating,” S&P said on Monday.
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“The company has a good record of raising capital through recycling assets and attracting new investors, in our opinion,” added S&P, which hopes to complete the review in three months.
Noble shares lost as much as 3.7 per cent to 39.5 Singapore cents — their lowest level in more than a month — in early trading on Tuesday.
Many market observers, however, are sceptical that Noble will be able to raise $500m. They say Noble needs to show it can generate cash consistently before an investor would subscribe for new shares.
As for disposals, Noble could sell all or part of its 49 per cent stake in its agricultural joint venture with Cofco, the state-owned Chinese grain trader. However it is unclear whether its partner is willing to buy the stake.
Even if Noble manages to raise $500m, some bankers believe it might not be enough to prevent a downgrade because it has other commitments such as a proposed $500m investment in X2 Resources, the new mining vehicle of former Xstrata boss Mick Davis.
Last week, Moody’s placed Noble on review for a downgrade citing the gap between the $1.9bn of cash and committed banks lines the company can tap and the $3bn of debt it must refinance or repay over the next year.
S&P took a similar tack with its decision.
“The company’s available and undrawn committed credit lines fell almost 50 per cent during the period to about $1bn. The company’s cash sources are less than 1.5x cash uses as of September 2015, below the threshold for a ‘strong’ liquidity assessment,” it said.
Commodity traders such as Noble are dependent on access to cheap credit to fund their activities and buy stocks. So an investment grade credit rating is important
Shares in Noble have fallen almost 20 per cent since the company released third-quarter results earlier this month. In that time they have underperformed peers such as Olam International.
While Noble did manage to report positive cash flow for the first time in several quarters, net income dropped 60 per cent and the company announced the departure of its chief financial officer.
Since February Noble has been battling allegations about its accounting practices, which is has repeatedly denied.
Commenting on the S&P statement Noble said: “We are committed to raising capital through various funding options, including asset disposals and partnerships with strategic investors, to strengthen our balance sheet and enhance liquidity. We are confident that these transactions will result in us retaining our investment grade rating.”
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