Commodities

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Noble Group, the Singapore-listed commodity trader, remains a favorite target of short sellers. It's been easy money, too. But as the company and its friends get stronger, bullies may need to look elsewhere.

The stock rose as much as 8.7 percent Tuesday morning, before erasing the gain, after Noble posted net profit of $8.2 million for 2016, compared with a loss of $1.7 billion the previous year. The rally came less than a week after the stock dropped 16.7 percent, when investors were spooked by a report that reiterated some old accounting questions (mostly answered in the past). 

See-Saw Pushing
Noble's stock dropped almost 17 percent Feb. 24 and at one point Tuesday was up nearly 9 percent
Source: Bloomberg

The positives are starting to accumulate. Noble's business model is much less capital-intensive now. Total debt dropped 32 percent to $4 billion, and unadjusted operating income rose 483 percent as the margin jumped to 1.44 percent from 0.17 percent. And the Bloomberg Commodity index has risen about 15 percent in the past year.

So, yes, there are reasons for Noble to return to popularity this year. Short sellers continue to circle the company, however. On Friday, the day that report hit the shares, short interest was at the highest level in five months. 

Ganging Up
On Friday, when a report hit Noble's stock, short interest on the security reached the highest point in five months
Sources: Markit; Bloomberg

The latest results probably gave bears pause, but what really should worry them is who's hanging out with Noble. On Feb. 14, the trader said it was in talks to sell a significant stake to a strategic investor, a subject Chief Financial Officer Paul Jackaman refused to discuss further in a conference call with analysts yesterday. At the time, the potential buyer was identified as Sinochem Group, a Chinese state-owned holding company.

If the Chinese company does buy in, Noble would be backed by some serious punching power. The heavyweight in question is Ning Gaoning, otherwise known as Frank Ning, who became chairman in January 2016. In his previous position as chairman of Cofco Corp., another state-owned company, Ning completed the acquisition of Noble Agri Ltd., the asset-heavy agricultural commodities unit, in 2015. 

The fact that Ning may be now looking at a strategic investment in the parent company could be a game-changer. Tormentors will remember what happened to Olam International Ltd., another Singapore-listed trader that was a target of short-sellers until the state-owned investment firm Temasek Holdings Pte took a larger stake in the company and returned the bruising.

If Sinochem joins Cofco in Noble's gang, it will be a tough one to bully.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net