NEW YORK CITY, NEW YORK, U.S. — Fitch Ratings affirmed on Jan. 14 that Noble Group Limited's (Noble) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BBB-'. The ratings on all its outstanding senior unsecured notes have also been affirmed at 'BBB-'. Other agencies have cut Nobles rating to junk status.
The affirmations are primarily driven by Noble's improved balance sheet and sufficient liquidity position following the disposal of its remaining 49% stake in Noble Agri Limited (Noble Agri) for $750 million, its commitment to reduce working capital for its metals business, and continued cash flow generation from its operations.
COFCO Corporation announced on Dec. 22 that it had reached an agreement with Noble Group under which COFCO Corporation’s subsidiary, COFCO International Limited (CIL), will acquire Noble Agri’s 49% stake held by Noble Group for $750 million. Upon the completion of the transaction, CIL will hold a 100% stake in Noble Agri, which will be renamed COFCO Agri.
Noble has been under pressure to raise cash to avoid losing its investment grade rating and being dropped to junk bond status. Noble Group’s Corporate & Others segment, which includes Noble Agri Limited, reported on Nov. 13 a loss of $60.7 million compared to a $193.2 million profit in the same period of last year. Noble Agri has continued to operate at a loss in the nine months ended Sept. 30, as it has continued to be impacted by lower sugar prices. The latest quarter also saw rain impacting the ramp up of the seasonal harvest and lowering sugar yields.
In addition, Fitch said the affirmations are based on Noble's ability to maintain adequate access to unsecured committed bank facilities given its stronger balance sheet and reduced working capital requirements. Any signs of deterioration in the company's ability to access unsecured bank funding could result in negative ratings action.
Fitch does not consider Noble's current inability to access capital markets to have significant impact on the company's credit profile as its near-term debt maturity is small ($360 million of notes due in the first quarter of 2016). This can be comfortably covered by Noble's existing liquidity, including unrestricted cash and cash equivalents and undrawn committed bank facilities, Fitch said.
Fitch believes that commodity trading and processing companies, especially the ones pursuing an asset-light trading strategy, need to maintain the ratio of working capital to total debt at no less than one time to ensure sufficient working capital as liquid assets to cover all their debts.
Fitch estimates Noble will generate $1 billion-$1.4 billion of cash in the fourth quarter of 2015 and the first quarter of 2016 from asset disposals, working capital reduction and cash inflow from operations. This and its $1.9 billion of liquid assets are sufficient to cover the $100 million-$200 million of additional contractual margin requirements that Noble estimates could arise from the recent ratings downgrades, $458 million of notes due in the 12 months to August 2016, and most of the $2.2 billion of short-term bank debt due in May 2016. This would mean that Noble would have to refinance around $1 billion-$1.5 billion of the maturing committed facilities to maintain its current liquidity position. This is after significantly improving its balance sheet in the interim.