OREANDA-NEWS.  Fitch Ratings has placed Noble Group Limited's (Noble) Long-Term Issuer Default Rating (IDR), senior unsecured rating and debt ratings of 'BBB-' on Rating Watch Negative (RWN).

The RWN is driven by Fitch's expectations that Noble will focus more on shorter-term and secured financing to lower financing costs amid a difficult operating environment. This is likely to result in less financial flexibility for the company.

The RWN will be resolved when Noble completes refinancing of its committed bank facilities, which is due in May, and on the announcement of its 1Q16 results. The resolution will also reflect our revised assessment of Noble, which will take into account the current weak operating environment, its focus on short-term debt financing in the future and its improved balance-sheet structure after it repays debt due in the short term.

KEY RATING DRIVERS
Focus on Short-Term Debt: Fitch expects Noble to use more short-term and secured debt to complement its asset-light strategy and to reduce overall financing costs given the poor operating environment for commodity traders. This will increase the risk profile of the company, reduce its financial flexibility and potentially put strain on its senior unsecured debt level.

Challenging Operating Environment: Noble's quarterly working capital yield (measured by EBITDA over working capital) dropped below 4% four times since 2014, amid the low visibility in commodity prices. In comparison, working capital yield was below 4% only three times in the 24 quarters before 2014.

Sufficient Liquidity: Noble's liquidity was at USD2.16bn at end-2015 (comprising USD1.56bn of unrestricted cash and equivalents and USD0.6bn of undrawn committed facilities), or equivalent to 1.2x its inventory level, which we believe is sufficient to cover requirements arising from reasonable commodity price increments. The higher cash balance at the end of the year was mainly a result of strong cash flow from operations and a reduction in working capital for its metals business.

Balance Sheet Improvements: We expect Noble's ratio of working capital to total debt (including 50% of perpetual capital securities as debt) to improve to around 1.1x post debt repayment in 1Q16 (end-2015: 0.96x). Higher-rated peers like Archer Daniels Midland Company (A/Stable) and Bunge Limited (BBB/Stable) have working capital to total debt ratios of 1.34x and 1.10x, at 1Q16, respectively.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Sales volume to remain similar to that of 2015
- Capex and business acquisitions of USD100m-150m a year

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- ability to procure committed bank facilities at competitive pricing levels and terms to refinance a large portion of the USD2.2bn facilities maturing in May 2016

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- failure to continue procuring committed bank facilities at competitive pricing levels and terms, especially the failure to refinance a large portion of the USD2.2bn facilities maturing in May 2016
- liquidity position (as defined by unrestricted cash and cash equivalent plus undrawn committed facility) to total inventory sustained below 1.0x (1.10x at end-3Q15)
- working capital/total debt sustained below 1.0x (1.14x at end-3Q15)
- sustained negative cash flow from operations (CFO was negative in 2014 and 2010 out of the past five years)
- weakened business strength as evidenced by reduced funding capacity to support working capital expansion over the cycle or sustained decline in tonnage volume that is more severe than industry performance, and evidence of weakening of risk management processes
- sustained weakening of quarterly EBITDA / working capital below 4% (this ratio fell below 4% for four times in the past 32 quarters)
- in the event of a downgrade into the 'BB' rating category, the senior unsecured ratings might be revised down one notch from the IDR if the company's unencumbered assets to total unsecured debt ratio is sustained below 2.0x