[SINGAPORE] Noble Group Ltd's shares slumped and its bonds fell to a record after the commodity trader had its credit rating cut to junk by Moody's Investors Service on concerns about the company's liquidity amid the rout in raw materials.
The stock closed 9.1 per cent lower at 40 Singapore cents on Wednesday. The shares have lost 64 per cent this year, the most among members of the Straits Times Index. Noble Group's dollar bonds due in 2020, its most liquid, were down 5.95 US cents on the dollar at 63.57 cents, the lowest since they were issued in 2009, according to Bloomberg-compiled prices.
The downgrade by Moody's may test Chief Executive Officer Yusuf Alireza's view that while an investment-grade rating is desirable, it isn't required for the business, with Standard & Poor's also reviewing its stance.
Moody's decision came a week after Noble Group agreed to sell the rest of its agriculture unit to China's Cofco Corp for at least US$750 million. While the deal may enable the company to cut debt, its liquidity remained constrained, according to Moody's, which expects the commodity slump to be prolonged.
"We're fairly surprised that Moody's took this action now given that the company had just managed to sell the rest of its Agri business to Cofco," said Andy DeVries, the New York-based analyst at Creditsights Inc who covers Noble Group. "On the other hand, the company is still not producing the cash flows it has been expected to."
Commodity companies worldwide have been hit by the selloff in energy and metals, which have been undermined by slowing growth in China and excess supplies. Moody's placed the credit rating at BHP Billiton Ltd, the world's largest mining company, under review this month, citing the probability that weak commodity prices may persist for years.
Moody's cut Noble Group's senior unsecured bonds to Ba1 from Baa3, according to a statement on Tuesday. The outlook for the new rating is negative given the risks associated with the company's plans to improve its liquidity and prospects for sustained weakness in commodity prices, the assessor said.
"We are of the firm view that, once the just-announced Noble Agri deal closes, our rating metrics will substantially exceed those required of an investment-grade credit," Noble said in a statement. "We are confident that the deal will be approved by our shareholders and will close before the end of February."
Noble Group suffers from low profitability and negative cash flow from its core operations, excluding the proceeds from asset sales, Moody's said. The trader's ability to gain consistent access to the bond markets is expected to remain constrained, it said.
Noble Group shares have fallen this year amid criticism from a group called Iceberg Research, whose members are anonymous, and investor concern that tumbling commodity prices will hurt its business. Noble has rejected the allegations, and said in November it was confident that it would meet targets set out by Moody's to maintain an investment-grade rating. Standard & Poor's rates Noble as BBB-, the lowest investment grade.