Photographer: Nicky Loh/Bloomberg

Noble Group’s Liquidity Crunch to Be ‘Temporary,’ Fitch Says

  • The de-emphasis on scale to stay until NAES sale, agency says
  • So-called liquidity ratio seen rising back above level of 1

A liquidity crunch at Noble Group Ltd. may prove to be temporary, according to Fitch Ratings Ltd., which said that the Singapore-listed commodity trader will probably generate about $900 million in the coming months including proceeds from a recent rights issue.

Liquidity will improve as Noble Group gets $500 million from the rights issue and the rest from working-capital reductions, Fitch Ratings said in a statement on Monday. The crunch of the second quarter won’t persist and Noble Group will have sufficient liquidity this quarter, it said.

The Hong Kong-based trader, which is backed by China’s sovereign wealth fund, has seen a two-year collapse in its shares as raw materials tanked, its accounting practices came under scrutiny and ratings agencies including Fitch cut the company’s debt to junk. After posting a second-quarter loss and increase in net debt last week, Noble Group said its priority is seeking cash ahead of earnings. As part of that drive, it’s selling a U.S. unit, Noble Americas Energy Solutions, to raise further funds.

NAES Sale

“The de-emphasis on business scale will remain until the sale of NAES business is completed,” Fitch said. “A significant reduction in Noble’s business scale or Ebitda generation could put pressure on its ratings. We will evaluate how the sale affects the company and how proceeds will be utilized once the sale is completed.” Ebitda typically refers to earnings before interest, taxes, depreciation and amortization.

In the second quarter, Noble Group’s so-called liquidity ratio totaled 0.5 times its inventory, down from 1.3 times at end of the first quarter, Fitch said. That’s expected to return to a level above 1 in the current quarter after the rights offering as well as cuts to working capital, according to Fitch.

Noble Group stock fell to the lowest since 2003 this month before the rights shares began trading. It has slumped 53 percent in 2016 even as commodity returns have rebounded from the lowest in a generation in January. The shares closed 3.4 percent lower at 14.3 Singapore cents.

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