• No more Agri associate losses after sale
• Overall outlook a tad more negative
• Lower FV of S$0.44

Concludes Noble Agri sale

Noble Group (Noble) recently announced that it has concluded the sale of its remaining 49% stake in Noble Agri Limited (NAL) to COFCO International Limited (CIL) for cash proceeds payable to Noble of US$750m. While the sale will result in a non-cash loss of US$546m (we suspect it would likely be incurred in 4Q15), it will remove Noble’s associate share of NAL’s losses; it also releases Noble from further performance and liabilities under the 49% guarantee for NAL’s debt.

Intends to repay debt to reduce gearing

Noble intends to use the cash proceeds to repay outstanding debt. On a pro forma 3Q15 basis, the move will reduce its adjusted net debt to US$1.8b; it also reduces its net gearing ratio to 43.1%. In addition, Noble expects its liquidity headroom to improve to US$2.7b. Although Noble believes that the sale will result in the group’s rating agency metrics improving comfortably above the investment grade thresholds, new reports suggest that the rating agencies remain rather lukewarm.

Moody’s cut Noble’s credit rating

Instead, Moody’s has opted to cut the rating on Noble’s senior unsecured bond ratings from Baa3 to Ba1, noting that while the sale will improve Noble’s liquidity profile, adjusted net debt to EBITDA, its liquidity position “remains constrained”.

It further noted that the global commodity downturn has become more severe over the last 1-2 months, where “these negative conditions might erode Noble’s access to funding and could therefore challenge its profitability.” Noble has called the downgrade “unfortunate” as Moody’s has chosen to focus more on the negative view of the commodity producer segment.

Wild swings in share price may persist

In the meantime, the company saw a sharp swing in its share price, running up as much as 22% on news of the impending sale before losing almost of these gains on news of the downgrade. Going forward, we suspect that the share price volatility may persist, given the more muted outlook for the global commodities market. On this note, we also opt to pare our fair value from S$0.54 to S$0.44. Maintain HOLD.

Source: OCBC Research - 7 Jan 2016