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Noble Group new white knight?

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Can founder Richard Elman save Singapore-listed, Hong Kong-based commodity trader, Noble Group? This is the most pressing concern for shareholders as the crisis-hit company battled crisis after crisis for over two years. The latest news on investments from a surprise Middle East investment group, Goldilocks Investment Company (GIC), must have brought a huge relief for shareholders.

While I certainly do not deem GIC as Noble Group’s new white knight, the latest investment is a sign of endorsement for Noble Group. GIC is part of Abu Dhabi Financial Group, a diversified global group with asset management of USD5 billion. The Middle East investor has a reputation of buying distressed companies.

According to the SGX filing on 22 June 2017, GIC purchased 50,546,000 ordinary shares in Noble Group. Taken together with GIC’s existing 15,454,000 ordinary shares it purchased on 19 June 2017, GIC became a substantial shareholder of NGL on 20 June 2017.

Noble Group

I am careful not to label Goldilock as a new white knight as the investment is not a form of cash injection in return for equity stake. It seems that the Middle East investment group bought the shares from open market and built up its stake within two days of the week. Given that Noble Group is in the midst of raising capital, this development may not seem to provide much aid for the struggling commodity trader. But somehow, it is encouraging evidence that Noble Group still possess value which continues to attract global institution players.

The vote of confidence from a Middle East strategic investor came on the back of recent extension of credit facility with several banks. Shareholders can certainly do with these slew of good news as Noble Group has been hit by relentless crises for more than two years. The troubles it encountered seem so bizarre that Noble Group’s story seems to be on course to become the corporate story of the year. From a blue chip in STI, Noble Group almost flirted with being relegated to SGX watch list until the regulator changed the Minimum Trading Price rule recently.

Trouble started two years ago when Noble Group got entangled with war of words with little known financial blogger, Iceberg Research, over its accounting practices. The negative reports unexpectedly led to ferocious short-selling attacks and caused the share price to plunge to new lows. It doesn’t help that commodity price has collapsed in recent years, causing much hardship for the commodity trader. And then, former CEO Yusuf Alireza resigned unexpectedly, creating more chaos and uncertainties for investors.

Noble Group started off the year brightly by announcing a profitable 2016 that saw the company clocked in an impressive profit of USD 8.1 million. Okay, the amount might sound like peanuts for a giant like Noble Group but it sure was a huge reversal from the colossal loss of USD 1.6 billion it suffered in 2015. Many investors thought that the worst was definitely over for Noble Group but the optimism proved to be premature when Noble Group stunned the market with a USD130 million loss for 1QFY2017.

Noble Group further incurred the wrath of investors by announcing the quarterly loss straight after the 10-into-1 shares consolidation. Many investors had bought into the perceived turn-around story of Noble Group and bought the shares thinking that the counter had bottomed out. After the financial results for the first quarter were released, share prices nose-dived and wiped out much confidence in the management’s ability. Share price sank from $1.30 to $0.30 within the span of one month.

Then ex-CEO Alireza returned to haunt Noble Group by suing Richard Elman over unpaid stock worth over $58 million in compensation. This is the second lawsuit filed by an ex-CEO of Noble Group. Ricardo Leiman, who left in 2011, sued Noble Group over withheld shares.

Apart from the lawsuits, the share price of Noble Group was largely in depressed mode for the past two months due to massive cutting of credits ratings by major agencies. This led to concerns of its ability to fund debts and caused the shares and bonds to collapse spectacularly this year. Thus, the announcement on 20 June 2017 that the Noble Americas Corp’s Senior Secured Borrowing Base Revolving Credit Facility will be extended by 120 days should lift some gloom for shareholders. But this is not to say Noble Group is out of the woods.

On the same day that it had announced the securing of the credit facility extension, Noble Group informed holders of the USD400 million Perpetual Capital Securities that it has deferred payment of the coupon otherwise due on 26 June 2017. Then on 26 June 2017, Fitch Ratings cut Noble Group credit rating to the level that indicates the possibility of default risk. This latest turn of event must have sent a chill down the spine of bond holders.

Nonetheless, notwithstanding the series of negative publicity, Noble Group’s strategic assets continued to attract numerous investors and interested buyers. On 22 June, it managed to dispose its entire 100% equity interests in wholly-owned subsidiaries which carry on non-ferrous metals warehousing services to WWS International Holdings Pte. Ltd., an affiliate of Golden Dragon Resources Pte. Ltd., for an aggregate consideration of approximately US$4.7 million. Based on the latest unaudited financial results of the Company for the period ended 31 March 2017, the book value and net tangible asset value attributable to the sale shares of each of WWS Singapore, WWS UK and WWS US was approximately USD3.4 million, USD5.6 million and USD1.4million respectively.

Noble Group has also sold off a number of assets in 2016, notably Watt Power, Noble Agri and Noble Americas Energy Solutions. It has also downsized its metal business. In addition, the rights issue in 2016 raised USD500 million. Despite all these initiatives, it seems that more assets need to be sold to fill up the hole in the finances as management signaled more asset fire sales to come.

In light of the disastrous quarter, the upcoming quarterly report would be a baptism of fire for Noble Group. It would shed light on whether the horrendous results of first quarter was one-off aberration or the start of a protracted nightmare. After all, Chairman Emeritus Richard Elman had warned that the company would not be profitable until 2019. So, investors should not harbour any wishful thinking for this stock and should expect share price to continue to fall in the near term.

My strategy for this counter is to buy the stock when it falls to abysmal level. My entry price is $0.05 for this counter. But then again, if the stock sank to such level, Noble Group may not be able to sustain as an ongoing entity. The banks have set a critical deadline of 4 months for the company to achieve turnaround. Failing to achieve this target could see another major implosion of the share price. Till now, expect a roller coaster ride.

Read my articles on Noble Group:

  1. Will Noble Group shares see daylight again?
  2. Collapse of Noble Group share price
  3. Meltdown of Noble Group shares
  4. Noble Group will sink or swim?
  5. Is Noble Group doomed?
  6. Will Noble Group do an Osim or Swiber?
  7. White Knight for Noble Group
  8. Mayday for Noble Group!

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