Noble might be unable to repay its rapidly rising debt: Moody's

$3.5b of debt will mature in 12 months.

Beleaguered commodity trader Noble Group needs to get its act together if it is to avoid a ratings downgrade from Moody's.

The ratings agency flagged the group's rising debt and its weakening liquidity profile, which became apparent after the release of its Q2 results. Noble's net debt rose to US$4.3 billion in Q2, higher than US$3.9b at the end of Q1.

Moody's highlighted that the group's adjusted net debt to earnings ratio has climbed to 3.5x for the 12 months to 30 June 2015, up from about 2.6x in 2014.

"Such financial metrics are at the limit of Moody's tolerance levels for Noble's ratings of 3.5-4.0x net debt to EBITDA and 20% for retained cash flow to net debt. Furthermore, given the current weak commodity market, we believe it may be challenging for Noble to improve its financial profile in the near term," Moody's said.

Moody's also cast doubt on Noble's debt payment ability given its weakening liquidity profile.

"While Noble reported US$1.1 billion in available cash and US$1.8 billion in available committed bank facilities at 30 June 2015, these two resources alone are insufficient to meet the US$3.5 billion in debt scheduled to mature over the next 12 months or the potential capital call of US$500 million for associate X2 Resources Partners," Moody's said.

The agency acknowledged that Noble's liquidity risk is partly mitigated by the large amount of readily marketable inventory that the company holds and which could be used to repay debt. However, Moody's said that Noble's underlying commodity markets are inherently volatile and that the business is confidence sensitive. 

Moody's downgraded Noble's outlook from stable to negative but affirmed its Baa3 ratings.