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Now S&P warns it may cut Noble’s rating to junk

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Beleaguered commodities trader Noble Group is at another risk of losing an investment grade rating, this time from Standard and Poor's—just a week after rival ratings agency Moody's triggered a similar assessment.

S&P now has a BBB- rating on Noble's long-term corporate credit and on the company's senior unsecured notes, the lowest ranking on the agency's investment-grade scale. These ratings are now on review with negative implications.

"The liquidity position of Noble has deteriorated, in our view, because of a reduction in the Hong Kong-based commodity trader's adjusted readily marketable inventory and committed undrawn credit facilities," said S&P in an announcement Monday.

A rating cut from its S&P rating to junk territory will likely increase Noble's borrowing costs and make it harder to refinance debt to shore up its finances.

S&P said that the company's liquidity worsened in the third quarter of 2015 following at 27 percent decline in its net available readily marketable inventory to $1.48 billion as of September 2015 from $2.0 billion in June 2015, mainly due to the broad-based slump in commodity prices.

The company's available and undrawn committed credit lines fell almost 50 percent during the same period to $1 billion, while cash sources are less than 1.5 times cash uses as of September 2015, "below the threshold for a 'strong' liquidity assessment," added S&P.

"Noble's financial leverage is also weak for the rating," with ratio of funds from operations (FFO) to debt at 19.8 percent as of September, down from 24 percent in March.

However, if Noble were able to raise at least $500 million in capital to offset its outstanding debt as the management had committed earlier this month, this will offset outstanding debt and improve its FFO ratio, said S&P.

The embattled Hong Kong-based company has been under the microscope since February this year with shares down more than 60 percent since then-anonymous Iceberg Research set off the scrimmage in February when it published a report, alleging that the Singapore-listed trader's accounting treatments were "unusual," result in "fabricated" profit and "intentionally misleads credit agencies and investors."

Noble said it is committed to maintaining its rating.

"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," said a spokesperson Tuesday.

Earlier this month, Noble reported third-quarter net profit fell 84 percent to $24.7 million from a year earlier on a nearly 20 percent drop in revenue to $18.7 billion.

The current slump in commodities prices is hammering companies selling raw materials from iron ore to palm oil, sending profits down and debt higher.

S&P's Monday announcement puts Noble's investment grade rating under review at two out of the big three credit rating agencies with Fitch Ratings more sanguine about the company's position.

Last Friday, Fitch which maintained its BBB- rating on the company said Nobel has sufficient liquidity to cover its short-term commitments in the next 12 months.

This, along with operational improvements, support its rating, added Fitch.

However, any weakening in Noble's liquidity position could result in negative rating actions.

Noble shares fell as much as 3.7 percent on Tuesday morning after S&P's notice.