Collapse of Noble Group share price

It is a battle that Noble Group cannot afford to lose. Today, the company requested for trading halt after it’s share price plunged by 32% following news of credit rating cut by S&P Global. This latest setback came after yesterday’s report that potential white knight, Sinochem Group, was not interested to invest in the embattled commodity trader.

The latest blows sent the Noble share price into tailspin, causing its market value to shrink to USD 400 million, a massive decline from USD 6 billion in 2015. This dark chapter of Noble gripped the market in maximum fear. Many shareholders would not be able to sleep well, fearing the worst for their investments. Can the beleaguered company turn the tide and emerge from the battle victorious?

The unfolding events of Noble Group are nothing short of intriguing. Once the largest Asia’s commodity trader, it used to be among the elites and was part of the Straits Times Index (STI) as recent as last year. In 2010, it’s share price was even trading at a high of $3.43. Those days must be surreal to existing shareholders who watched in horror as the share price keep falling over the past two years.

Some investors blamed the founder, Richard Elman, for the current situation that Noble Group is facing and there were calls demanding for him to step down as Chairman. In 2015, the Group was mired in controversy as a little known financial blogger accused it of dubious accounting practice. This led Noble Group to engage PricewaterhouseCoopers (PwC) to review its accounting method. PwC subsequently confirmed that Noble Group followed international standard for its accounting.

Read my previous updates on Noble Group:

1. Noble Group will swim or sink?
2. Meltdown of Noble Group shares
3. Is Noble Group doomed?
4. Will Noble Group do an Osim or Swiber?
5. White knight for Noble Group

I am not a professional accountant but since PwC had come out to validate Noble’s accounting methods, there should not be any wrongdoings. Otherwise, SGX would have taken actions against Noble Group.

For the record, I am not vested in this counter. But I just feel that sacking the founder would not help to salvage the situation. Let’s not forget that Richard Elman founded and built the company from scratch to a multi-billion dollar global enterprise. How many people in the world are capable of achieving this feat? Armchair critics should realize that if there is anyone who can save Noble Group right now, that person has to be Richard Elman.

The appointment of Paul Brough as the new Chairman is a positive step in the right direction as he has been a non-executive director at Noble since 2015 and knows the company. Seen as a restructuring specialist, Paul has an unenviable task of navigating Noble  through a challenging storm. His priorities now should be to reduce costs and improve liquidity through selling of assets to raise capital.

To be fair to the management, there were significant progress made in reducing costs and enhancing liquidity. Cost reduction initiatives resulted in 45% decline in expenses to USD 91 million in Q1FY17. In February 2017, a USD1 billion revolving borrowing base facility was closed and in March 2017, the Group successfully raised USD 750 million in 5 year senior notes. Cash holding stood at US1.5 billion and this should be sufficient to meet the short-term debts.

The next few weeks would be critical for Noble Group as the company is in talks with lenders over renewing secured borrowing facility. In light of the credit-rating downgrades, Noble Group may face challenges in securing debt financing facility. As the crisis in confidence manifests, the only way to get out this mud is the emergence of a white knight. But that flicker of hope has been extinguished with Sinochem’s pull out.

Noble’s major shareholder is actually China Investment Corp (CIC) but the sovereign wealth fund has been paring down stakes from 14.72% in 2010 to 9.65% in 2015. Currently CIC is represented by two board members in Noble.

Short-sellers continued to attack Noble Group shares. From 8 to 12 May 2017, traders shorted 76 million shares worth $69 million. The week prior, a whopping 199 million shares were shorted, worth $25.8 million. Given that Noble Group may not become profitable until 2019, share price is expected to remain weak for the rest of the year. To protect capital, existing shareholders must start to think whether they should short-sell or continue holding without actions.

There are readers who claimed that my articles of Noble Group are written from the angle of a trader but referred to shareholders as investors. My point is does it matter whether you are a trader or investor? At the end of the day, the objective of a trader and investor is the same – to make money. Sometimes, being an investor is much riskier than a trader. In this case, long-term investor of Noble Group would suffer huge paper losses if they do not take action to short-sell the shares.

I am not saying that trading is risk-free. Of course there are risks in trading and you must have the time and right strategy to trade successfully. Shareholders who claim to be “long-term investors” may face higher risk by taking no actions.

There are several ways for Noble Group to survive this storm. The company has to raise as much capital through fire sale of assets and ensuring liquidity is not dry through cash injections from CIC. Liquidity is needed to finance the short-term debt obligations. With the credit rating cuts, it will be difficult to secure credit facility and raise cash through bond issuance. So, the best approach should be another round of rights issuance – asking shareholders for money. If this do happen, expect another rights to be issued at steep discount.

At the current rate, the share price of Noble Group is likely to continue to slide. I still see the long-term potential in this company but would avoid investing at the moment because of the chaotic situation. Setting an entry price is tricky because of the toxic market sentiments. But as the saying, there is no crisis that lasts forever. So long as CIC remains on board, I believe Noble Group would survive this storm. Till then, enjoy the ride.

Magically yours,

SG Wealth Builder