Noble’s steeply discounted rights issue won’t save its bacon: Fitch

Its funding scheme is too short-term focused.

Noble’s efforts to boost liquidity will not affect the company’s credit ratings, according to Fitch Ratings. Fitch notes that Noble is constrained by its short-term focused funding structure, as well as turbulent operating environment.

According to Fitch Ratings, Noble intends to drum up US$2b in additional liquidity over the next 12 months. This consists of a proposed rights issue with net proceeds of US$500m, as well the sale of Noble Americas Energy Solutions and non-core assets. Further, Noble plans to slash working capital.

“Noble's liquidity headroom at end-1Q16 stood at USD1.86bn (comprising USD862m of unrestricted cash and equivalents and USD1bn of undrawn committed facilities), or 1.25x of its inventory,” asserts Fitch.

“We expect this ratio to decrease in the short-term after repayment of its debt totalling USD1.6bn in May, but it will increase significantly after the liquidity generating activities take place,” it adds.

Additionally, Noble is expected to use more short-term debt to supplement its asset-light strategy. Noble is also seen to slash overall funding costs given the tepid operating environment for commodity traders.

“This as reflected in its recent refinancing of USD1bn of unsecured committed bank facilities, which contained a single one-year tranche compared with multiple tranches of various maturities in previous years. This type of funding structure weakened Noble's debt maturity profile, a key constraint on its ratings,” Fitch notes.

On top of this, low visibility in commodity prices have led to a sustained disappointing operating environment for commodity traders like Noble, where its quarterly working capital yield plummeted below 4% four times since 2014, versus only thrice in the 24 quarters before 2014.