Noble Group Declines as Fitch Sees 'Real Possibility' of Default

  • Rating agency cut trader’s score for third time in two months
  • Noble stock falls as much as 7.6 percent upon reopening

Noble Group Ltd. shares slid Tuesday on the first day of trading after Fitch Ratings cut the embattled commodities trader’s credit rating to a score indicating that a default is possible.

The company’s stock dropped 2.8 percent as of 3:04 p.m. in Singapore after a public holiday Monday. It earlier fell as much as 7.6 percent. Fitch slashed its rating late Friday by two steps to CCC, its third downgrade since the middle of last month. Fitch’s definition for that rating says it indicates "substantial credit risk" and that "default is a real possibility."

The moves mark a reversal following a 63 percent surge in Noble Group’s shares last week, when the company said it remains in talks with potential investors after agreeing with lenders to extend its $2 billion credit facility for four months. The struggle to sustain the rally flags challenges for the company, in which Abu Dhabi fund Goldilocks Investment Co. became a major holder last week, as it searches for a strategic investor to restore confidence following a collapse in its shares and bonds this year.

“The extension of Noble’s $2 billion borrowing base facilities by 120 days from June 20, 2017 does not provide evidence of medium-term funding stabilization,” Fitch said in its statement Friday. The uncertainty surrounding the outcome of the facility may constrain the company’s flexibility in its trading operations, according to Fitch.

Letters of Credit

Fitch estimates that Noble had $900 million of cash on its balance sheet end May, and should be able to cover the $600 million drawn under the borrowing base facility. It added that the facility also gives Noble access to letters of credit, of which $1 billion had been drawn. “The letters of credit are key tools to provide credit enhancement to suppliers,” said Fitch, adding that reduced access would diminish Noble’s capacity to trade.

Noble Group didn’t immediately respond to a request for comment on Tuesday on Fitch’s downgrade.

The company’s 6.75 percent bonds due in 2020 were at 37.7 cents on the dollar, according to prices compiled by Bloomberg. They have fallen from 83.7 cents at the end of last year.

“We recognize Noble’s effort to sell part of the group or its assets to aid in the restructuring of its business," Fitch said. “But visibility over the form or success of any transaction is low given current market conditions.”

— With assistance by Jasmine Ng

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