Moody’s Investors Service has downgraded Noble Group’s corporate family rating and senior unsecured bond ratings to Caa3 from Caa1, and the rating on its senior unsecured medium-term note (MTN) programme to (P)Caa3 from (P)Caa1.
The rating outlook remains negative. “The downgrade reflects significant default risk for Noble within the next several quarters, given its operating cash burn, declining cash levels and large debt maturities. Moreover, should it default, we believe the prospect of a full recovery of principal and interest will be low for unsecured bondholders,” says Gloria Tsuen, a Moody’s vice-president and senior analyst.
Noble’s liquidity headroom – including readily available cash and unutilised committed facilities – fell to $1.4bn at end-June 2017 from $2.4bn at end-March 2017. This is insufficient to cover the company’s $2.6bn in bank debt and bonds due in the next 12 months.
The decrease in readily available cash to $635mn at end-2Q 2017 from $1.4bn at end-1Q 2017 reflects both widening cash outflow from operations and the repayment of a $650mn bank loan in May 2017.
Noble’s cash outflow from operations rose to $480mn in 2Q 2017 from $323mn in 1Q 2017, mainly because of an increase in its adjusted operating loss from supply chains (before exceptional items) to $267mn from $3mn and sizeable working capital deficits.
The increased losses reflect in part a loss of confidence among Noble’s lenders, suppliers, customers, and other counterparties. The company has also had to conservatively manage its liquidity, scale back its risk positions, and have constraints placed on its access to trade finance facilities, thus limiting its trading operations.
The company also reported a large adjusted net loss of $1.8bn in Q2, 2017 mainly because of the operating loss and write-downs for net fair value gains. As a result, its equity base shrank to $2.1bn at end-June 2017 from $3.8bn at end-March 2017. The company is selling its assets to help reduce debt: (1) it has entered into an agreement to sell its North American gas and power businesses for $248mn; (2) it plans to exit its global oil liquids business; and (3) it will further dispose assets over the next two years.
However, it is uncertain whether these sales will raise sufficient proceeds to meet its debt maturities and cash outflow over the next 12 months. 
In addition, the proposed disposals would substantially reduce Noble’s scale and global reach, challenging its ability to generate profit and cash flow to service the remaining debt. The negative outlook on the ratings reflects the high likelihood of a default over the next 12 months and the uncertain recovery prospects for creditors. 
The ratings outlook could return to stable or the ratings could be upgraded if the company raises sufficient proceeds from asset sales to meet its maturing debt and cash outflow from operations over the next 12 months. However, Noble’s ratings are likely to be downgraded if (1) it defaults
on its payment obligations; (2) its liquidity deteriorates further; or (3) the debt recovery in the case of default is likely to be significantly lower than currently anticipated. The principal methodology used in these ratings was Trading Companies published in June 2016. 
Noble Group is one of the major physical commodities supply chain managers in Asia by revenue.
 Its activities across the supply chain include the sourcing, storage, processing, transportation, and distribution of over 20 commodity products.
Founder and chairman emeritus, Richard Elman, holds an approximate 18% stake in the company. China Investment Corp – the Chinese sovereign wealth fund – owns about 10%.