China Inc. Steps Up to Support Noble Group as CIC Takes Shares

  • CIC’s support is of ‘utmost importance’, Chairman Elman says
  • Sovereign wealth fund will get a second seat on Noble’s board

Noble Group Ltd. has turned in its hour of need to China Inc., with the country’s sovereign wealth fund standing by the embattled commodities trader as it rolls out a rights issue to boost its finances and Chairman Richard Elman plans to step down.

The Hong Kong-based company will offer 1 rights share for each existing share at 11 Singapore cents, a 63 percent discount from the close on Thursday, according to a statement on Friday. Of the new shares, biggest holder Elman has agreed to take 625.5 million, less than his full entitlement, while China Investment Corp., the third-largest, will take 630.6 million, all of its portion. CIC will now get a second seat on the board.

Richard Elman
Richard Elman
Photographer: Jerome Favre/Bloomberg

Noble Group is Asia’s top trader of raw materials, dealing in everything from iron ore to crude oil, and China is the world’s largest user of metals and energy. CIC has been a major shareholder since 2009, when it paid $850 million for new shares as well as some of Elman’s holdings. As Noble Group faced mounting challenges in recent years as commodities plunged and its accounting methods came under attack, the company found China’s state-backed Cofco Corp. to buy its agriculture holdings in a two-stage deal.

‘Interests Are Aligned’

“They’re one of the largest shareholders, at this moment it’s not wise for them to dump the shares; it’s already so low, so better to step up support,” Margaret Yang, a strategist at CMC Markets in Singapore, said by phone, referring to CIC. “They want to step up and support the share price, because their interests are aligned.”

Noble Group’s shares lost as much as 15 percent to 25.5 cents after the rights issue was announced, the lowest price since 2003, and closed at 26 cents. Its bonds fared better, as the company’s 2020 notes surged by a record 10.8 cents to 85.8 cents on the dollar, the highest level since August, according to Bloomberg-compiled prices.

“Noble is still a major player in terms of global commodities and it makes sense strategically for Chinese interests to take a greater interest,” said Tim Schroeders, a Melbourne-based portfolio manager at Pengana Capital Ltd., who helps oversee about $1.2 billion.

CEO Resigns

Before the rights issue and news of Elman’s plans to step back, Noble Group had seen another turbulent week as the company said on Monday that Chief Executive Officer Yusuf Alireza was resigning, and it planned to sell off a business, Noble Americas Energy Solutions, that less than a month ago he’d described as a core asset. Noble Group said on Friday that the disposal of NAES may be completed in the second half.

At Elman’s request, the board will set up a sub-committee to examine options for his succession, and will identify a replacement to become non-executive chairman, according to Friday’s statements. Elman wishes to step down as executive chairman within the next 12 months, it said. While he holds about 22.3 percent of existing stock, he’s agreed to take 9.6 percent of the new shares on offer.

“The rights issue is a big surprise at such a dilutive discount, and more so with CIC willing to share the pain,” said Leong Wai Hoong, a senior money manager in Singapore at Nikko Asset Management Asia Ltd. “The company is inflicting pain on equity holders, which is good news for credit investors.”

The new shares that aren’t underwritten either by Elman or CIC are being underwritten by a group of banks comprising HSBC Holdings Plc, Morgan Stanley, DBS Group Holdings Ltd., Societe Generale SA and ING Groep. According to data compiled by Bloomberg, Noble Group’s other major shareholders are Prudential Plc, with 9.9 percent; Orbis Group, which has a 9.6 percent holding; and Franklin Resources Inc., with 5.9 percent.

Nobody answered an e-mail sent to CIC’s media office on Friday. Media representatives for Prudential, Orbis and Franklin declined to comment.

“The rights issue, together with the sale of Noble Americas Energy Solutions announced last Monday and the previously announced sale of low-return assets and working-capital reduction measures will, in aggregate, generate $2 billion in additional liquidity over the next 12 months,” the company said. “This liquidity will be available to further reduce net debt, and will also significantly improve the group’s financial flexibility.”

Noble Group said it would seek to cut costs further, an initiative that will fall to Alireza’s successors, co-CEOs William Randall and Jeff Frase. Earlier this year, Alireza secured fresh financing totaling $3 billion, while acknowledging some banks had cut credit facilities during the first quarter. It had net debt of $1.9 billion maturing over the next 12 months, Alireza said May 12.

“It is clear from the decisive capital-raising actions that we have initiated post-refinancing that we have moved firmly to re-position our balance sheet,” said Elman, who told shareholders in this year’s annual report that while commodities were a great business, all he had to offer was blood and sweat. “The support of CIC in these initiatives has been of utmost importance.”

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