RAM Ratings has assigned a preliminary AA2 rating to Noble Group Limited's (Noble or the Group) proposed RM3 billion Multi-Currency Sukuk Murabahah Programme (2012/2032) ("sukuk"); the long-term rating has a stable outlook.

Based in Hong Kong and listed on the Singapore Exchange, Noble is a global supply-chain manager for bulk commodities. The Group sources a vast array of products from low-cost producing countries and delivers them to high-growth markets. Selectively, the Group operates or owns equity stakes in mining, production, processing, and logistics assets. In FY Dec 2011, Noble generated approximately USD504 million of pre-tax profit on the back of USD81 billion of revenue.

The preliminary AA2 rating is supported by Noble's position as one of the leading players in its industry. The Group trades a wide spectrum of products such as grains and oilseeds, sugar, coffee, coal, coke, oil, gas, power, iron ore, and aluminium. Most of these products are characterised by solid demand. Noble also enjoys prominent positions in niche markets. "The Group boasts prominent positions in soybean processing in China, sugar and ethanol production in Brazil, distribution of crude oil, gasoline and electricity in the United States, and sale of Indian-sourced iron ore," explains Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings.

The rating is also supported by Noble's solid liquidity position and substantial financial flexibility. As at end-FY Dec 2011, the Group's ratio on cash and readily marketable inventories (RMI) to short-term debts stood at 6.22 times. It possessed about USD2 billion of unencumbered property, plant and equipment as at the same date.

Noble's strong commitment to risk management is underlined by its extensive hedging practices to preserve its relatively thin margins. This had enabled it to remain profitable amid the economic downturn. 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; about 95% of its receivables have maturities of less than 30 days. Meanwhile, the Group has a rather short operating cash cycle, averaging at 13 days for the past 5 years.

That said, the Group's financial metrics are modest relative to its current rating. As at end-FY Dec 2011, Noble's adjusted gearing and net gearing ratios stood at 1.25 times and 0.96 times, respectively. Accounting for its RMI, the Group's adjusted net gearing ratio would come up to a much healthier 0.48 times. Meanwhile, Noble's average adjusted funds from operations (FFO) debt cover ratio stood at 0.23 times for the past 5 years (end-FY Dec 2011: 0.15 times). Taking into account the portion of its debts that were covered by RMI, this ratio would have averaged at 0.65 times in the past 5 years (end-FY Dec 2011: 0.24 times). Going forward, we expect Noble's adjusted FFO debt cover ratio to recover to around 0.2 times over the next few years.

Elsewhere, Noble's financial performance can fluctuate with changes in commodity prices. "Although this is partly mitigated by the diversity of the Group's largely hedged portfolio of products, this does not preclude the effects of sudden and sizeable changes in commodity prices. Such occurrences could dampen profitability in this low-margin, high-volume business, as was the case in FY Dec 2011," observes Kevin. Apart from this, the Group's operations are exposed to external factors such as port congestion, poor weather conditions and changes in regulatory policies that could affect prompt delivery of products.

Media contact Low Li May (603) 7628 1175 limay@ram.com.my

© Press Release 2012¬