Noble

Noble: (S$0.405) Downgraded to junk status despite agri unit sale
Noble sank nearly 7% after Moody’s downgraded its senior unsecured bond to junk status with a rating of Ba1 from Baa3 on concerns over the group's liquidity amidst a broad downturn in commodity prices.

The ratings agency had earlier warned that it would take action on Noble’s ratings after it initiated a review in Nov ‘15. Moody’s maintains a negative outlook on Noble’s new junk credit rating.

Noble tried to starve off the credit rating downgrade when it agreed to sell its remaining 49% stake in its agriculture unit, Noble Agri, to China’s Cofco Corp for US$750m ($1.06b).

Despite the improvement in Noble’s liquidity profile and adjusted net debt/EBITDA to 3.2x from 3Q15’s 7.2x, Moody’s opines that Noble could continue to to face low profitability and negative cash flows from core operations.

In particular, the downgrade reflects Moody’s expectations of a prolonged commodity downcycle, and the consequent negative sentiment that would affect Noble and other traders in general.

Overall, the ratings agency believes that Noble will continue to face pressure to move more of its bank funding to a secured platform if it faces challenges to access unsecured debt funding.

In response to the downgrade, Noble reiterated its stand that the Noble Agri sale would put its financial metrics in excess of those required of an investment grade credit.

Noble has shed more than 60% of its value since Feb when Iceberg Research alleged the group was inflating its assets amid concerns that tumbling commodity prices will hurt its business.

The group maintains an investment grade rating of BBB- with the other two major ratings agencies, S&P and Fitch.

The street is relatively sanguine on the prospects of Noble, mainly on valuation grounds with 4 Buy and 6 Hold ratings and a consensus TP of $0.64. The counter is trading at 0.37x P/B.