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Announcement:

Moody's comments on Noble Group's FY2010 results

Global Credit Research - 02 Mar 2011

Hong Kong, March 02, 2011 -- Moody's Investors Service says that Noble Group Ltd's full-year results for 2010 have no immediate impact on the company's Baa3 issuer and bond ratings. The rating outlook remains stable.

"Noble achieved record volume, revenue, and profit in 2010, reflecting robust market conditions, added capacity, and contributions from new acquisitions," says Elizabeth Allen, a Vice President and Senior Credit Officer at Moody's.

"However, such business growth resulted in higher working capital funding needs and thus in increased leverage," adds Allen

In FY2010 Noble reported 82% revenue growth to USD56.7 billion and 48% growth in operating income from supply chain, reflecting the broad based contribution from its diversified business mix and strong presence in growth markets. Unadjusted EBITDA increased by 43% to USD1.2 billion.

The agricultural segment showed the highest tonnage and profit growth, whereas the energy segment, which now accounted for 65% of total revenue, was the key driver for top-line growth. However, the energy segment, which commands higher product prices and is in a ramp-up phase, had a slight negative impact on the profit margin compared to last year.

Noble's strong growth, as well as higher commodity prices, resulted in higher working capital requirements related to higher inventory and receivables levels as well as increase margin for its hedging transactions. Excluding the non-cash effect of various derivative instruments, Noble's working capital needs came to USD2.4 billion in FY2010, up from USD1.7 billion in FY2009. However, inventory and accounts receivable turnover days have both reduced, and overall, this accelerated its asset conversion cycle.

Noble also spent USD1.2 billion on capex to expand its supply chain assets as well as to make acquisitions during FY2010.

The company's funding needs were met by the debt it raised during the year, including USD1.15 billion in bonds. In addition, the company issued USD350 million in perpetual capital securities, to which Moody's assigned a 50% equity credit (basket C). Noble also raised and extended its committed credit facilities to a total of USD7 billion.

Correspondingly, unadjusted net debt increased by USD2.5 billion to USD5.4 billion as of December 2010. Moody's notes that of the USD4.0 billion inventory, Noble classified 93% as readily marketable inventory ("RMI"), which are pre-sold or hedged commodities with widely available markets and international pricing mechanisms.

Noble's credit ratios for FY2010 were in line with Moody's expectations, but were weak for its Baa3 ratings. After incorporating Moody's adjustments (for RMI under Moody's more conservative definition, and for operating leases and others), adjusted net debt/EBITDA of 3.4x and RCF/net debt of 15% were weaker than the 2.7x and 24% in FY2009. Nonetheless, Moody's notes the improvement of its performance and credit metrics in the fourth quarter from the second and third quarters.

Noble's liquidity remained sound, with free cash of USD872 million and undrawn committed cash lines of USD 3.2 billion as of end-2010. This should be sufficient to cover its short-term debt of USD1.8 billion and near term working capital requirements.

However, any material acquisitions, including the two Brazilian sugar mills for which Noble is conducting due diligence, could strain its balance sheet. Management stated late last year that it expects the consideration to be USD950 million, including USD350 million for equity and USD600 million for debt assumption. The exact details of the funding arrangement have yet to be finalized. Once known Moody's will evaluate the impact, if any, on Noble's rating.

The stable outlook reflects Moody's understanding that Noble is committed to an investment-grade profile and hence expects management to take appropriate actions in 2011 to improve its credit ratios. Should these expectations not be met, the rating would come under pressure.

Given the latest credit metrics and the potential acquisition, a rating upgrade in the near term is unlikely. In the medium term, however, the rating may be raised if Noble 1) improves its profitability; 2) further strengthens its liquidity and equity base; and, 3) maintains a strong financial profile as it continues to expand.

Credit metrics that Moody's would consider for an upgrade include net debt/EBITDA lower than 2-2.5x and RCF/net debt higher than 30%. These ratios will be considered on both adjusted and unadjusted bases.

Downward rating pressure could emerge upon 1) a weakening of liquidity; 2) erosion of its EBITDA margin; 3) aggressive debt-funded expansion; and 4) deterioration in its financial profile.

Credit metrics that Moody's would consider as signals for a downgrade include net debt/EBITDA exceeding 3.5-4x and RCF/net debt fail to trend towards 20% by end of 2011. Moody's notes that Noble is currently at the low end of these financial metrics, but expects management's initiatives to return them to stronger levels in 2011.

Moody's last rating action with regard to Noble took place on August 2, 2010, when Moody's assigned a Baa3 rating to Noble's USD750 million senior unsecured notes.

Noble's ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, including the company's i) business risk and competitive position compared with its peers; ii) capital structure and financial risk; iii) projected performance over the near to intermediate term; and iv) management's track record and tolerance for risk.

These attributes were compared against other issuers both within and outside of Noble's core industry; Noble's ratings are believed to be comparable to those of other issuers of similar credit risk.

Noble is the largest global trader and supply chain manager in Asia. It is engaged in the sourcing, storage, transportation, and distribution of agricultural, energy, and industrial products. Headquartered in Hong Kong, it is listed on the Singapore Stock Exchange.

Hong Kong
Elizabeth Allen
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's comments on Noble Group's FY2010 results
No Related Data.
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