OREANDA-NEWS. Fitch Ratings says today that Noble Group Limited (Noble, BBB-/Stable) has sufficient liquidity to cover its short-term commitments in the next 12 months, which, along with operational improvements, support its rating. However, any weakening in Noble's liquidity position could result in negative rating actions.

Noble's immediate liquidity need is the repayment of the USD458m senior notes due within the next half year, which it has the cash to do so. Its USD2.5bn short-term bank debt at end-3Q15 remains at an elevated level as the company attempted to reduce finance costs by switching from capital financing to bank debt financing in 2015. Fitch believes this will keep Noble's short-term debt at a higher level than the historical trend of around USD1.4bn-1.6bn prior to 2015.

Assuming Noble repays the USD458m senior notes with bank loans, then its total bank debt would be USD3.9bn, which is sufficiently covered by its USD4.4bn committed facilities, and USD1.6bn of senior debts that will be due in 2018 and 2020. Its unrestricted cash and equivalents of USD975m plus the excess of committed facilities over its total bank debt of USD1.5bn is 86% of its inventory level; giving Noble liquidity headroom to cover any liquidity need arising from commodity price movements.

In addition, Noble obtained an USD1.1bn facility in October, which allows for working capital loans as well as the issuance of trade-finance instruments and is available for advances and letters of credit. This provides Noble with additional flexibility to increase availability of its committed facility by drawing down uncommitted facilities. Noble's liquidity position is also mitigated by its readily marketable inventory of USD1.7bn at end-3Q15, which can be used to repay debt if needed.

However, any deterioration of the company's liquidity profile - especially a further deterioration of committed undrawn facilities - is likely to result in negative ratings action. Fitch will closely monitor Noble's ability to improve its liquidity headroom, either through operating cash flow generation, asset disposal or capital raising in the next six to 12 months.

Fitch also believes that Noble's working capital changes in 3Q15 reflect its business needs and does not see a material reduction in its working capital position being used to raise its liquidity position. The large USD1.35bn decrease in inventory and receivables should be seen in conjunction with a reduction of USD0.8bn in payables. Furthermore, the reduced inventory value is partly price-driven as evidenced by the USD423m increase in fair-value gains on derivatives used in hedging.

Noble generated USD260m in cash flow from operations (CFO) in 3Q15 compared with negative CFO of USD965m in 1H15, in line with our expectation. The company intends to raise USD500m from asset disposals and/or other strategic or financial transactions to strengthen its balance sheet. Fitch expects Noble to continue to improve its core operations in 4Q15 to support the reduction of its net debt level.

Fitch may reassess Noble's operational risks if the losses in the metals segment persist or if the increase in operating income fails to consistently match the increase in its volume. Noble's positions in its trading operation are mostly hedged, and their profitability should be sustainable and any earnings should be positively correlated with volume. The energy segment's profitability may improve in 4Q15 or 1Q16 as energy prices tend to increase during the winter months.

Noble's balance sheet has remained stable as the ratio of its working capital to total debt remained at 1.16x in 3Q15. This alleviates one of Fitch's concerns regarding continued use of debt to fund business expansions.