Will Noble Group shares see daylight again?

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.

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 [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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