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Will Noble Group shares see daylight again?

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The month of May had been horrendous for investors of Noble Group and many of them must be wondering if the shares would ever see daylight again. The short answer to this would be: not at the moment.

After two years of struggling, Noble Group was about to stage an impressive recovery when it announced a shocking quarterly loss of USD 129 million in May. That stunning news really knocked the wind out of investors and led to the collapse of its share price. The free fall of its shares also turned off potential white knight, Sinochem Group, which subsequently gave Noble Group the snub.

The financial results raised fresh question marks over the management’s ability to revive the company’s fortune and fulfill the debt obligations. Because of this, credit ratings agencies had been ferociously downgrading Noble Group’s credit ratings for the past few weeks. On 26 May 2017, it was reported that Fitch Ratings Ltd cut the commodity trader’s rating for the second time within the space of 10 days.

Noble Group

As far as I can recollect, it is very rare for a credit ratings agency to downgrade a company’s rating within such a short span of time. While such downgrading was common during the Great Financial Crisis period, we are talking about peace time here. Hence, the downgrade of Fitch credit ratings should raise alarm bells and investors must thread with caution.

The credit ratings downgrades issued by various credit agencies would have negative impact on the commodity trader’s business because they would make it extremely difficult for the Hong Kong-based company to refinance credit facility. For a commodity trader, credit facility is like the bloodline and if liquidity is dried up, the end could be imminent.

At this point of time, investors must be trying hard to fathom why the major shareholder, China Investment Corp (CIC), has not extend a helping hand and inject much-needed cash into the ailing company. Perhaps CIC’s patience has been tested for the past two years. After all, the sovereign wealth fund had fully supported the rights issuance last year and may want some positive results before investing further in Noble Group. This approach would make sense as nobody would want to throw good money after bad.

In any case, although CIC has very deep pocket, investors may want to note that the sovereign wealth fund had been paring down its stake from 14.72% in 2010 to 9.65% in 2015. In light of this, investors should be wary of the risk that CIC may decide to cut losses and write off its investments in Noble Group.

Currently, Noble Group is fighting for its life and the next few weeks would be critical as the company seeks to secure credit facility. Any further bad news would surely drive the share price further to the rock bottom. For the past two months, the shares had dived more than 80% in value, triggering the SGX circuit breaker on a few occasions. It certainly did not help that Richard Elman, the company founder, warned that Noble Group might not be profitable until 2019.

One year is an eternity in the stock market, not to mention two years. The recent quarterly loss announcement has already wrecked so much havoc. So, you can imagine further shocks down the road for the next two years. But is Noble Group really a lost cause? In my point of view, it has every chance of staging a comeback and there had been stories of corporate turnarounds in Singapore stock market.

Similar to Richard Elman, Ron Sim built Osim from scratch into a global business. In 2009, Osim wrote off its botched investment in Brookstone and the shares subsequently plunged to all time low of $0.05. That was during the Great Financial Crisis and everyone, including myself, was sure that the Singapore massage chair maker was doomed. However, Osim confounded investors and not only recovered from the setback, but also went to record 20 straight months of quarterly profit growth. The stunning achievement led to the recovery of its share price and created one of the most legendary Singapore stock market stories.

In Richard Elman, I see the same grit of Ron Sim. Both are fighters and it is unlikely that Richard would let Noble Group go down without a fight. Some readers had criticized me for comparing Ron Sim to Richard Elman but then again, let us not forget that both are self-made entrepreneurs who had built multi-billion business empires in their lifetime. For them, it is not just about money which is at stake. As entrepreneurs, I believe they share the same ego, belief and passion in their businesses. Thus, if there is anyone who can save Noble Group from self-destruction, it had to be Richard Elman.

However, at the age of 77, time is not on Richard Elman’s side. Whereas Singapore’s Ron Sim is only 59. In fact, Ron still have enough fire in his stomach to take Osim private and re-listed the company in the Hong Kong stock market months after the exit in Singapore stock market.

I am not vested in Noble Group but still believe in the long-term prospect of the business model in Asia. Fundamentally as supply chain manager, the core business involves the provision of logistic services in transporting commodities from producers to customers. Another aspect of Noble Group business is the commodity trading activities. The company had ridden the commodity wave during the boom years of China economic expansion. Now that China’ economy is slowing down, Noble Group is at a cross-road. Make no mistake, the commodity demand in Asia is still there because this region is still young and growing. To sustain, the company must transform itself and shed unprofitable business units.

From the perspective of a shareholder, the worst scenario would be an offer by the management to delist from the stock market at current market value. If this do happen, it would be a massive value destruction for investors at the highest order because of the rights issuance in 2016 and subsequent 10-into-1 shares consolidation early this year. Investors who held the stocks for the past two years would have suffered massive losses.

However, for the management, taking the company private would be the best solution because of fewer disclosure requirements to meet and short-sellers would also not be able to attack the company.

Check out the following blog articles:

  1. Collapse of Noble Group share price
  2. Meltdown of Noble Group shares
  3. Noble Group will sink or swim?
  4. Is Noble Group doomed?
  5. Will Noble Group do an Osim or Swiber?

As an observer, all I hope is that Noble Group would not choose the privatization route. This company used to be a shining blue chip and was the largest commodity trader in Asia. Although it is no longer the force it used to be, its rise to the global stage is nothing short of a fairy tale.

Barring any unforeseen circumstances like delisting or hostile takeover, I would enter Noble Group at $0.05. I have set aside a few thousands to invest in this company and would seize the opportunity to buy on the cheap. Even if my investment logic is flawed, the maximum losses would be a few thousand dollars. The losses would be manageable and would not cause financial hardship for my family. But if Noble Group really mounted a comeback like what Osim did, then it would be a windfall for my family.

Now is the time for the founder to write the final chapter of the story. Will there be a twist or is it the end of the road for Noble Group? One thing for sure is that Richard Elman is leaving the readers in deep suspense. Stay tune and enjoy the ride.

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6 Comments

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  1. Really enjoy reading your pieces. Pearls of wisdom from someone very experienced in the local market. Please keep them coming!!

  2. Hi Chia,

    Thank you for your kind compliments! Your words motivate me to continue writing useful content for all of you. Please continue to support SG Wealth Builder!

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  3. I really appreciate your latest article on Noble. Very informative and well-thought.
    I am a newbie in your forum. I hope to learn more from you and other members, and more importantly be able to share my comments as well.
    Thank you Gerald.

  4. Hi SGwealthbuilder,

    I read your post like this: Emotionally you didn’t lose 70 to 90% like the bondholders and shareholders.
    However, can anybody look back and say it was good to let Noble raise more than 2B in equity offering and bonds ?

    The scenario is that

    Perhaps Noble (來寶集團) needs to raise another 2B to pay coming debt retirement (re-assure the lenders that they refinance the fair to arrive net equity on a solvency basis) – the book doesn’t generate positive cash flow and built equity, a net value since 3 years.

    either CIC or someone else must do so you live the Osim scenario.

  5. Hi Peter,

    Thank you for your kind comments.
    You can continue to support SG Wealth Builder by subscribing to my email notification if you have not. It is free.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  6. Hi Structurer,

    Your comment is fair as I am not vested in this count. Hence, I do not carry the emotional baggage like the existing shareholders.

    The best scenario is for a white knight to rescue Noble Group from the mud. I know investors would be angry if there is really another rights issuance but looking at the way it is now, there are few options left for Noble Group. With credit ratings so terrible, I doubt Noble Group is able to issue a bond.

    You may consider subscribing to my blog for free email notifications. I would be writing a few more articles covering Noble Group in the next few days. Stay tune.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

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