S&P cuts credit rating on Noble Group

STANDARD & Poor's (S&P) Ratings Services has lowered its long-term corporate credit rating on Noble Group to "BB-" from "BB+", on the company's volatile earnings, and its higher-than-expected trading position. The outlook is negative.

"We downgraded Noble because of the company's volatile earnings and high trade risk position, as reflected in its large marked-to-market loss in 2015," said S&P's credit analyst Cindy Huang. "In our view, the loss weakens Noble's credit standing and relationship with banks, despite the company's near-term refinancing risk remaining manageable."

Noble this month plunged into the red for 2015, recording its first annual loss in almost two decades of US$1.67 billion as the weight of an earlier-announced impairment charge bore down on the firm.

"The unexpected loss highlights the limited visibility and transparency around Noble's earnings. In our view, the company's profitability is highly volatile, given its complex physical contracts book and derivatives programme," S&P said. "Noble's trading position is higher than we previously anticipated due to the unexpected asset impairment. The company has significant long-dated contracts that are not fully hedgeable and the value of which relies on input assumptions that are not market-observable."

The rating agency said it cannot rule out further asset impairments, given the depressed commodity prices. While Noble's price assumptions on its long-dated contracts are now "at levels that are much more aligned with market spot and short-term forward prices", it may not be able to adequately protect itself against future negative developments such as further price declines or counterparty defaults.

S&P has also lowered the long-term issue rating on Noble's outstanding senior unsecured notes to "B+" from "BB". A bond that is rated anything below a triple-B is a junk bond, or debt that is non-investment grade.

"The negative outlook reflects the uncertainties around the details of Noble's refinancing," added Ms Huang. "In light of difficult markets, further capital-raising initiatives may be difficult for the company."

S&P said Noble's short-term liquidity risk appears manageable. The company is said to be in "well-progressed discussions" with banks on refinancing its short-term credit facility due in May 2016.