Global Credit Research - 01 Mar 2013
Hong Kong, March 01, 2013 -- Moody's Investors Service has today affirmed the Baa3 issuer rating for Noble Group Limited (Noble). At the same time, the outlook on the rating has been changed from negative to stable.
RATINGS RATIONALE
"The change in outlook follows the announcement of Noble's 2012 financial results, which showed continued deleveraging efforts and the maintenance of a strong liquidity profile," says Laura Acres, a Moody's Senior Vice President.
Noble's 2012 operating results were broadly in line with expectations. The company achieved record 2012 revenues of US$94.0 billion, substantially driven by the energy segment, supported by strong contributions from existing assets and off-take agreements.
Reported EBITDA held steady at $1.15 billion, while adjusted EBITDA declined by 3.0% given the reduced adjustment for time charter rent expense.
Reported debt fell by 8.1% to US$5.6 billion -- the lowest level since Q2 2010 - as Noble continued to focus on improving working capital efficiency. Balance sheet cash excluding restricted cash with futures brokers declined to US$604 million, however, post balance sheet date Noble received some $354 million in cash as part of the final settlement in the merger between Gloucester Coal and Yancoal Australia.
"Adjusted net debt/EBITDA for 2012 was 3.8x. Given the cash inflows in respect of Gloucester Coal in January 2013, pro forma adjusted net debt/EBITDA stands at 3.6x. Retained cash flow (RCF)/adjusted net debt improved to 12.9% in 2012 from 9.7% in 2011, while the pro forma figure was 13.7%," says Acres, also Moody's Lead Analyst for Noble.
We expect that financial metrics will show further improvement in H1 2013 given: the inflow of US$354 million in January 2013 from the Gloucester Coal merger, proceeds of which have been applied to reducing net debt; repayment of US$500 million of 8.5% bonds in May 2013, which have been refinanced with a mixture of cash and lower cost debt; further asset recycling initiatives; and management focus on reducing operating and finance costs by US$100 million. The move away from an asset-medium strategy toward asset-light should also help to improve leverage metrics.
Further comfort can be drawn from Noble's sound liquidity profile, with free cash—excluding restricted cash with futures brokers--of around US$1 billion (pro forma for the Gloucester Coal proceeds received in January 2013) and undrawn committed credit facilities of around US$5.3 billion as of end 2012. This is sufficient to cover all of its total reported debt outstanding of US$5.6 billion.
The stable outlook reflects Noble's weak, albeit improving, financial profile and its ongoing efforts and initiatives to improve its financial profile through a combination of underlying growth, asset recycling initiatives and cost reduction measures.
Given the company's modest credit metrics, an upgrade in the near term is unlikely. However, upward rating pressure could materialize if Noble can improve its financial profile by further enhancing its RCF and containing its debt levels, for example through asset monetization, such that RCF/adjusted net debt is in excess of 25% and adjusted net debt/EBITDA falls below 2.5x.
On the other hand, downward rating pressure could emerge if: 1) liquidity weakens, 2) the company undertakes aggressive debt-funded expansion, and, 3) its financial profile deteriorates over an extended period. Credit metrics that Moody's would consider include adjusted net debt/EBITDA remaining above 3.5x-4x and RCF/adjusted net debt failing to trend towards 20%.
The principal methodology used in this rating was the Global Commodity Merchandising and Processing Companies Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Noble is the largest global physical commodities supply chain manager in Asia. Its diversified activities across the supply chain include the sourcing, storage, processing, transportation, and distribution of over 20 commodity products. Noble's key reporting segments are agriculture; energy; and metals, minerals and ores. Noble is also partially back-integrated into some commodities through its ownership of assets and infrastructure across the supply chain.
Headquartered in Hong Kong, Noble has offices at 140 locations globally. The company is publicly traded on the Singapore Stock Exchange. Founder and Chairman, Richard Elman, holds about 22% of Noble. It is also around 15%-owned by China Investment Corporation (CIC), the Chinese sovereign wealth fund, and about 1% owned by Korea Investment Corporation (KIC), the Korean sovereign wealth fund.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
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