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Press Release
11 Aug | Monday
RAM Ratings reaffirms Noble’s debt issue rating

RAM Ratings has reaffirmed the AA2/Stable rating of Noble Group Limited’s (Noble or the Group) RM3 billion Multi-Currency Sukuk Murabahah Programme (2012/2032).

“The reaffirmation of the rating is based on our expectation that the proposed sale of 51% of Noble’s agriculture business, Noble Agri Limited (NAL), to COFCO (Hong Kong) Limited will alleviate some of the pressure on Noble’s financial metrics. In FY Dec 2013, Noble’s financials were constrained by the weak operational performance of its agriculture segment and an increased debt load,” said Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. The Group’s operating performance and financial metrics are expected to improve to within our expectations subsequent to the sale of a majority stake in the loss-making agriculture unit, the deconsolidation of NAL’s third-party debt and the repayment of some debt with the proceeds raised.

The rating is supported by Noble’s position as a major global bulk commodity supply-chain manager with wide product and geographical diversification as well as the Group’s adequate liquidity headroom and substantial financial flexibility. That said, the Group’s operations are exposed to external factors such as poor weather conditions, port congestion and changes in regulatory policies. Fluctuating commodity prices can affect both Noble’s financial performance (although this will be mitigated by the diversity of its largely-hedged portfolio of products) and its working-capital needs in funding inventories.

While Noble’s top line rose 4.1% y-o-y in FY Dec 2013, the Group’s operating performance was dragged down by losses in the agriculture segment, which was challenged by soft sugar prices, low crush margins and ramp-up costs of the Group’s new crushing facilities. However, the energy segment continued to support Noble’s operating performance, as it took advantage of regional arbitrage opportunities in the North American gas and power markets and generated profit through strategic relationships in the coal and metals supply chain. Meanwhile, net profit plunged 48.7%, mainly attributable to the share of associate losses from coal miner Yancoal Australia Ltd, which were largely non-cash in nature.

In 1Q FY 2014, Noble’s operating profit before interest and tax surged 61.2% y-o-y. An unseasonably cold winter in the Northern Hemisphere in 2013/2014 had increased energy price volatility, which had offered more arbitrage opportunities in the energy segment. The MMO segment posted higher operating income on record physical aluminium premiums. Meanwhile, the operating losses of the agriculture segment narrowed in a seasonally slow quarter, due mainly to a strong harvest and good crush margins in Argentina, albeit still challenged by weak crush margins in China.

Including its agricultural operations, Noble’s debt increased to USD6.8 billion as at end-March 2014, primarily to fund investments to expand its origination network through off-take and marketing contracts, as well as working-capital requirements. This resulted in an increase in its estimated gearing ratio (adjusted for readily marketable inventories (RMI)) to 0.97 times (end-December 2012: 0.69 times) and a deterioration of its annualised funds from operations (FFO) to RMI-adjusted debt ratio to 0.26 times (end-December 2012: 0.33 times). Upon completion of the sale of the Group’s agriculture business and the deconsolidation of NAL’s debt, Noble’s RMI-adjusted gearing and FFO debt coverage ratios are estimated to improve to within our expected ranges of around 0.7 times and 0.3 times, respectively, depending on the use of the disposal proceeds.

Media contact:
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my

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