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[HONG KONG] Fitch Ratings says that Noble Group Limited's increased collateral requirements following a series of credit events in 2015 is manageable given its improved liquidity following asset sales.
A trading company like Noble could face increased collateral and/or security requirements from counterparties if the latter view that its credit profile has weakened. This could result in weakening of the company's liquidity position as the company will have to use more letters of credit (LCs) as forms of payment. In addition, some derivative contracts might require the posting of additional margins in the event of a credit rating downgrade. Lastly, the company's cost of finance from its bank lines could rise, or its available bank facilities may even shrink.
According to Noble's management, it estimated in 2015 that the additional margin requirements from a credit rating downgrade would be in the range of US$100 - 200 million. Management has informed Fitch that the company has not breached this range, even with the recent downgrade of its ratings to sub-investment grade by one of the credit rating agencies.
Fitch believes that the additional collateral requirements can be adequately covered by the company following its disposal of Noble Agri Limited (as noted in "Fitch: Disposal of Noble Agri May Provide Relief to Noble's Liquidity" dated 23 December 2015).
Fitch will continue to monitor the potential impact on Noble of the factors mentioned above, and any significant increase in collateral needs or funding costs could result in negative rating action.