TEXT-Fitch affirms Noble Group at 'BBB-'; outlook stable

Tue Nov 13, 2012 3:54am EST

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(The following statement was released by the rating agency)

Nov 13 - Fitch Ratings has affirmed Hong Kong-based Noble Group Limited's (Noble Group) Long-Term Issuer Default Ratings (IDR) and senior unsecured rating at 'BBB-', respectively. The Outlook is Stable. Noble Group is Asia's largest commodity processing and trading company.

The ratings are supported by Noble Group's deleveraging efforts, its sound financial policy and prudent risk management. The ratings also reflect its still high leverage, measured by adjusted net debt/EBITDA less readily marketable inventories (RMI) interest, of 2.9x as at 12 months to September 2012 due to past asset acquisitions. The ratings are further constrained by a challenging commodity market that is currently putting pressure on the company's operating performance.

Noble Group's debt which includes the USD350m perpetual peaked in Q311 at USD7.4bn before falling to USD6.1bn in Q312. This is in part due to fluctuating working capital needs through a commodity market cycle and, more importantly, due to the company's partial sale of Gloucester Coal Limited as part of its asset recycling strategy. As a result, leverage fell to 2.9x at LTM to September 2012 from 3.5x at end-2011, after taking into account the USD357m - out of the total cash receipt of approximately USD800m from this transaction - that will be received in January 2013. Noble Group's working capital-adjusted net debt, which indicates the amount of debt used to fund non-current asset expansion, also fell to USD2.1bn at end-Q312 from USD2.6bn at end-2011.

Noble Group's sound financial policy is underpinned by funding non-current assets substantially with long-term debt of maturity of more than five years. Because the company also funds its working capital with long-term debt, it is not at risk of credit withdrawals during times of tight liquidity. Furthermore, Fitch believes that its substantial USD5.1bn of available committed credit facilities are more than adequate to meet increased working capital needs in the event of an improving market and for debt servicing.

Fitch expects Noble Group's leverage to be above 2.5x for the financial year 2012, which already takes into account the USD357m to be received in January 2013. However, the company's leverage is expected to fall below 2.5x in 2013 due to lower capex compared with an annual average of USD670m since 2008; and due to the company's cost reduction efforts and asset recycling strategy. .

What could trigger a rating action?

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- RMI adjusted net leverage remaining above 2.5x on a sustained basis

- weakened operational flexibility such as reduced funding capacity to support working capital expansion over the cycle, or sustained decline in tonnage volume that is more severe than industry performance

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- increase in its supply chain earnings to above USD1.5bn on a sustained basis while maintaining its current financial profile

- RMI adjusted net leverage to falling below 2.0x on a sustained basis

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