Elman’s 30-Year Roller-Coaster Ride at Helm of Trader Nears Endby
Noble Group chairman and founder says he wants to step down
Commodity trader selling assets, cutting staff to boost funds
Thirty years after founding Noble Group Ltd., chairman Richard Elman is ready to hand over, stepping down from a company that’s been reduced to a shadow of the trading behemoth it once was.
At the end of a torrid week in which the junk-rated company announced that its chief executive officer quit, it plans to sell one of its more profitable businesses, and it will be propped up by China through a rights issue, Elman, 76, said he wants to step down as executive chairman. The company’s shares fell to the lowest since 2003.
The commodities trading house he founded in 1986 has lost more than 80 percent of its market value over the past two years, battered by attacks on its accounting and the collapse in commodity prices. The planned sale of its gas and power distribution business and the $500 million rights issue are the latest steps to bolster its finances and cut debt after selling off its agriculture business to China’s Cofco Corp. last year.
Elman’s plans show he “is really concerned about how the company that he founded is doing,” Bernard Aw, a strategist at IG Asia Pte., said by phone. “By having Richard Elman stepping down, maybe investors could be more optimistic about the direction.”
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, Noble said in a statement to the Singapore stock exchange on Friday. Elman wishes to step down within a year, it said.
An external spokeswoman for the company said Elman declined to comment further on his departure.
“We were also surprised Chairman Elman chose to announce his planned retirement on the heels of the departure of ex-CEO Yusuf Alireza,” Morningstar Inc. analysts wrote in a report on Friday. “The leadership change at Noble we think adds to near-term uncertainty.”
In the rights issue, the Hong Kong-based company will offer 1 new share for each existing share at 11 Singapore cents, a 63 percent discount from the closing price on Thursday, according to the statement. Elman agreed to take less than half his entitlement, while sovereign wealth fund China Investment Corp., the third-largest shareholder, will take its full amount of 630.6 million shares and get a second seat on the board. Elman’s 22.3 percent slice of the company will shrink if other investors or the underwriters take their share, though he will remain the largest stockholder.
Noble’s shares fell 13 percent to 26 Singapore cents, the lowest since 2003. The company’s 2020 notes surged by a record 9.9 cents to 84.8 cents on the dollar to the highest level since August, according to Bloomberg-compiled prices.
Noble’s efforts to raise capital are reshaping the company. It has already offloaded its agriculture unit and now plans to sell Noble Americas Energy Solutions as well some low-return assets. Along with the rights issue and “rigorous” cost savings that include a reduction in headcount, it says it will raise liquidity by $2 billion, helping reduce net debt and bolster its finances. That’s on top of fresh financing of $3 billion announced earlier this month.
It’s aiming for an “asset-light” strategy focused on three trading groups: hard commodities like coal, metals and iron ore; gas and power, which includes its liquefied natural gas business; and oil liquids, the crude and fuel trading unit.
Elman started his career as a teenage scrap-metal laborer in England, using the concept of finding value in the rubble when he entered commodities trading and moved to Hong Kong. He rode the China wave, starting with iron ore and metals and reshuffling businesses as new opportunities came.
As China boomed, so did Noble, growing to a $10 billion Singapore-listed trading house with an investment-grade rating and access to unsecured capital. Today, its market capitalization is about $1.2 billion.
Elman’s decades-long ascent to the top of the commodity trading sector began to unravel in February 2015, when an anonymous group called Iceberg Research criticized Noble’s accounting. The company dismissed the allegations as the work of a disgruntled ex-employee and began ongoing litigation against him.
But the China gravy train was also ending, pulling down commodities prices. Noble’s value went with it and the company’s credit rating was cut to junk as concerns mounted over its finances and its share price collapsed.
Under new co-CEOs William Randall and Jeff Frase, and with a replacement non-executive chairman now sought, a very different company is likely to emerge. Responsibilities will be split by region and commodity types. Randall will focus on Asia-Pacific and the hard commodities and LNG businesses. Frase will be responsible for the Americas and EMEA, with a focus on oil, gas and power.
“Elman’s departure has been on the cards,” said Nirgunan Tiruchelvam, an analyst at Religare Capital Markets in Singapore, who rates the company a buy. “It could pave the way for a strategic investor.”