Noble Group saw its credit rating cut by Fitch Ratings to junk status, or BB+ from BBB-, with the rating agency noting that the commodity trader’s weakening debt maturity profile is “no longer consistent with an investment grade rating”.

In particular, Fitch was concerned about the shifting of Noble’ debt structure towards shorter-term financing to complement its assetlight business model. However, Fitch has maintained “stable outlook” for Noble, which reflects Noble’s continuous improvements in its balance sheet and commitment to maintaining sufficient liquidity to cover working capital needs.

Lastly, Fitch notes that a repayment of US$1.6b of debt in May could temporarily reduce liquidity headroom; but it could be partially mitigated by a potential drawdown from its newly signed US$2b borrowing base facilities, and “will increase the post-realisation of planned equity placement and non-core asset sales”.

We currently have a HOLD on the stock with S$0.34 fair value; we prefer to engage at S$0.30 or better.

Source: OCBC Research - 18 May 2016