Noble default risk rises most in Asia on debt payment challenge

[SINGAPORE] Singapore-listed commodity trader Noble Group's default risk rose the most in Asia this year as a deepening resources slump threatens to worsen the imbalance between the company's cash flows and liabilities.

The cost to protect the company's notes against non-payment for one year is 2,593 basis points, the highest in Asia, according to data provider CMA. The company is preparing to refinance US$2.1 billion of loans due in April and May. Noble reported short-term debt of US$3 billion on Sept 30 and US$1.9 billion of unused committed bank facilities plus cash and equivalents.

The climb in credit-default swaps came after Standard & Poor's and Moody's Investors Service both cut Noble's rating to junk in the past month citing liquidity issues, while Fitch Ratings affirmed its score at the lowest investment-grade ranking on Thursday as asset sales improved finances. Noble said it has been successful in raising cash and still has support from its creditors.

"They still have a liquidity issue that they've got to manage, which is dealing with the banks to refinance loans coming due in May at a time when the industry environment is not favorable," said Joe Morrison, an analyst at Moody's in Hong Kong.

"The rating committee felt that selling assets to deal with a liquidity issue was not consistent with an investment grade profile and that the company still has some challenges going forward." Noble agreed in December to sell the remaining 49 per cent of its agricultural unit to China's Cofco Corp. for at least US$750 million to reduce debt. Cofco already owned the other 51 per cent.

"Banks have their own rating metrics, and none of our bank facilities have ratings triggers," Stephen Brown, a Noble spokesman, said in e-mailed comments. "We have successfully raised US$2.1 billion since last October. More than half of that capital is from the banks, which is a demonstration of strong support from the lenders that we still continue to enjoy. In addition, with the fall of commodity prices, working capital requirements - and hence funding needs - have decreased."

BLOOMBERG