Futures & Commodities

S&P downgrades Noble to junk; Fitch keeps investment credit rating

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Embattled commodities trader Noble Group has started the year on another credit rating cut, after Standards and Poor's downgraded the company to junk status.

S&P's move late on Thursday to lower its long-term corporate credit rating for the Hong Kong-based company to BB+ from BBB- comes just a week after a similar cut from rival ratings agency Moody's.

Noble shares on the Singapore Exchange tanked as much as 10 percent to the fresh seven-year low of 31 Singapore cents each shortly after opening on Friday.The company's most liquid dollar bonds due in 2020 also dropped to their lowest on record.

"We downgraded Noble because the company's liquidity is below what we expect for a strong liquidity position, despite the sale of its agricultural unit," S&P credit analyst Cindy Huang said.

"In our view, the company's credit standing in the capital markets and with lenders has weakened, reflected in its depressed securities prices."

The cut to junk territory will likely increase Noble's borrowing costs and make it harder for the trader to refinance debt to shore up its finances.

Noble shares have fallen 70 percent in the last year, since a firm called Iceberg Research 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."

Moody's cuts Noble to junk credit rating despite Agri deal

Noble has said it had identified Iceberg as Arnaud Vagner, a disgruntled ex-employee it claimed to have fired in 2013; the company filed a lawsuit against Vagner in Hong Kong, alleging "conspiracy to injure." Iceberg has previously refused to confirm or deny whether Vagner is a principal.

Noble has consistently and vehemently denied the allegations and has taken multiple steps to improve its disclosures to investors, including commissioning an independent review of its accounting from PricewaterhouseCoopers (PwC), which found Noble's accounting was in line with international standards.

Both Moody's and S&P sounded warnings on Noble's rating in November by announcing reviews of the company's investment grading.

In a move that was read as an attempt to counter the review, the Singapore-listed company reached an agreement to sell its stake in Noble Agri, its joint venture with COFCO International, to the Chinese state-owned giant for $750 million in cash.

Crude drops to 12-year lows

The ongoing rout in the commodities market, however, has offset benefits from the sale.

"The company has a good track record in executing on its capital plans, including the recent sale of Noble Agri. However, the current depressed commodities markets and heightened risk aversion by lenders could complicate the company's fund raising plans for the next few months, in our view," said S&P in its ratings downgrade.

"In addition, we believe Noble's earnings and cash flow visibility is limited and heightened downside risks to our base-line expectation may increase as the commodities industry downturn looks to be prolonged."

Noble still holds an investment grade rating from Fitch Ratings.

Fitch said in a note earlier Thursday that Noble's increased collateral requirements resulting from a lowered credit rating were "manageable" after improved liquidity following asset sale.

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In response to the S&P downgrade, Noble said that the cuts would not have a material impact on the company's operations and reiterated that its rating metrics would "substantially" exceed those required of an investment grade once the Noble Agri deal closes.

"To date, the increased collateral calls have been immaterial and below the previously indicated range of $100 million to $200 milllion. The current low price environment continues to offer opportunities and plays to our strengths as an asset-light supply chain manager," Noble said in a statement.

Nemesis Iceberg Research said S&P's decision was "important" because the company "has never been investment grade".

"The financial manipulations were precisely conducted to artificially preserve this rating," Iceberg said in an email.

"The accounting illusion is over. With a share price down 71 percent since our first report, and strong doubts over their balance sheet, Noble is facing an even more acute crisis. This group is slowly moving toward bankruptcy."

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