Agri stake sale fails to save Noble from dreaded junk status

Liquidity concerns persist, says Moody’s.

Asia’s largest commodity trader ended 2015 on a sad note, after ratings agency Moody’s downgraded Noble Group’s bonds to junk status on December 29.

The downgrade came despite Noble’s last-minute revelation that it will sell its agribusiness unit for $750 million to Chinese state-owned company COFCO.

Moody’s said that despite the asset sale, Noble will continue to grapple with liquidity concerns on back of low profitability and consistent negative free cash flow from its core operating activities.

"The downgrade also reflects the uncertainty as to whether or not these factors can be improved sustainably and materially, given our expectations of a prolonged commodity downcycle, and the consequent negative sentiment impacting Noble and commodity traders in general," said Joe Morrison, a Moody's Vice President and Senior Credit Officer.

Overall, Moody's said that Noble could continue to face pressure to move more of its bank funding to a secured platform, if it faces challenges to access unsecured debt funding.

Moody's also noted that Noble's ability to gain consistent access to the bond markets will remain constrained. This challenge is unusual for investment grade entities and the sporadic nature of its access is a characteristic that is more consistent with that of junk-rated entities, Moody’s said.

In response to the downgrade, Noble said that it remains confident that rating metrics will “substantially exceed those required of an investment grade credit” after the sale of its agri stake.

“It is unfortunate that this transaction has seemingly, in our view, been outweighed by Moody's negative view of the commodity producer segment. The matter is not expected to have any material financial impact and/or any material impact on the Group's operations. We continue to enjoy investment grade status with our two other ratings agencies and will work with Moody's to ensure that our rating reflects the financial metrics that Noble will attain,” Noble said.