RAM Ratings has reaffirmed the long-term rating of AA2 for Noble Group Limited’s (“Noble” or “the Group”) RM3 billion Multi-Currency Sukuk Murabahah Programme

Published on 28 June 2013

RAM Ratings has reaffirmed the long-term rating of AA2 for Noble Group Limited’s (“Noble” or “the Group”) RM3 billion Multi-Currency Sukuk Murabahah Programme (2012/2032); the long-term rating has a stable outlook.
“The rating remains supported by Noble’s position as one of the leading global bulk commodity supply-chain providers. It trades a wide spectrum of products, such as gas, power, coal, coke, oilseeds, grains, sugar, coffee, cocoa, cotton, aluminum and iron ore,” explains Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings. We opine that such diversity enables the Group to better weather a downturn in any particular sector, as seen in 1Q FY Dec 2013, when the stronger performance of its energy segment helped to partially offset the weaker agriculture and MMO segments. Noble also enjoys geographic diversity – its traded commodities are supplied to many countries in both developing and mature economies. Similarly, it sources from multiple locations to reduce dependence on any single supplier.
The rating also reflects Noble’s solid liquidity position and substantial financial flexibility. As at end-March 2013, the Group’s ratio on cash and readily marketable inventories (“RMI”) to short-term debts stood at 3.19 times.
Meanwhile, Noble’s financial profile improved over the past year, largely in line with its lighter debt load. As at end-December 2012, its RMI-adjusted gearing ratio was a healthier 0.57 times (end-December 2011: 0.78 times) while its RMI-adjusted funds from operations debt cover ratio (“FFODC”) came up to 0.38 times (end-December 2011: 0.24 times). As at end-March 2013, the Group’s debt load had increased slightly to fund its working-capital needs, translating into an RMI-adjusted gearing ratio of 0.66 times. Coupled with its weak 1Q FY Dec 2013 performance, Noble’s annualised RMI-adjusted FFODC dipped to 0.25 times. However, this ratio is projected to recover to at least 0.3 times, in line with our expectations of improved earnings for the Group in the next few quarters. At the same time, its RMI-adjusted gearing ratio is expected to remain at around 0.6–0.7 times. We opine that the Group’s move towards an asset-light business model would help keep its debts at a manageable level.
Noble’s strong commitment to risk management has enabled it to remain profitable even during economic downturns. We further note that there have been fairly minimal impairments in the Group’s trade receivables. In the last 5 years, an average of less than 2% of its receivables have been impaired annually.
That said, the Group’s operations are exposed to external factors such as port congestion, poor weather conditions and changes in regulatory policies. This was evident in 1Q FY Dec 2013, when the Group’s agriculture segment had been affected by supply disruptions from adverse weather as well as logistics issues. Apart from this, Noble’s financial performance can fluctuate with changes in commodity prices, although this is partly mitigated by the diversity of its largely hedged portfolio of products. On this note, fluctuating commodity prices also affect the Group’s working-capital needs in funding these inventories.

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