[Updated to include comments from Noble]
Center Valley, Pennsylvania 29/12/2015 - Moody's has downgraded Noble Group Limited's senior unsecured bond ratings to junk status of Ba1 from Baa3, the rating agency said on Tuesday.
"The downgrade of Noble's ratings reflects Moody's concerns over the company's liquidity," Joe Morrison, a Moody's vice president and senior credit officer, said.
Moody's is also worried about low levels of profitability and consistent negative free cash flow from core operating activities, which exclude proceeds from asset sales.
"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," Morrison said.
Moody's believes these negative conditions might erode Noble's access to funding.
Noble, however, thinks that that its rating metrics will substantially exceed those required of an investment grade credit once it sells the remaining 49 percent stake in its agriculture unit Noble Agri to China’s Cofco Corp for $750 million in cash.
All proceeds from that deal, which is expected to close in February, will be used to pay down debt.
"It is unfortunate that this transaction has seemingly been outweighed by Moody's negative view of the commodity producer segment," Noble said in a statement.
"As an asset-light supply chain manager, the current environment is opportunity rich and plays to our strengths, while the low price environment substantially reduces the working capital required to support our business," said Noble, which noted that it continues to enjoy investment grade status with the other two main ratings agencies.
Moody's does acknowledge that receipt from the Noble Agri sale will improve Noble's liquidity profile and adjusted net debt/EBITDA to about 3.2x in 2015.
"However, Noble's liquidity position remains constrained, despite the company's well-developed plans to further improve the situation in the coming months," Moody's said.
"Overall, Moody's views 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," it added.
Privately owned Noble is a global trading firm that partners with both producers and consumers. It sources bulk commodities from low-cost regions such as South America, South Africa, Australia and Indonesia and supplies high-growth demand markets, particularly in Asia and the Middle East.
It was founded in 1987 and incorporated in Bermuda, it is listed in Singapore, with its headquarters in Hong Kong. It operates offices in 60 locations globally, and employs 1,900.
Noble's share price tumbled nearly 70 percent from February to as low as 38 Singapore cents (27 US cents) per share in earlier in October. It was at 44 Singapore cents on Tuesday.