Noble Group Eyes Investor as Profit Seen Up to 2 Years Awayby
Strategic partner ‘still very possible,’ founder Elman says
Commodity trader says it’s on track to raise $2 billion
Noble Group Ltd. is still seeking a strategic investor as the founder and chairman of the embattled Asian commodities trader says it will take as much as two years for a return to profit. Shares rallied.
“A strategic partner is still very possible,” Richard Elman, who is due to stand down as executive chairman by June, said in an interview at the company’s headquarters in Hong Kong. “But it has to be at the right time and the right candidate.”
Noble is battling to prop up its finances after a torrid 19 months during which its share price collapsed amid attacks on its accounting and the first yearly loss in almost two decades. While Elman says the company is still on track to raise $2 billion by cutting jobs, selling shares and assets and even holding back cash from profitable parts of the business, the search for a new investor shows the lengths it’s still prepared to go in the pursuit of new capital.
The company has long-standing ties with Chinese state-owned entities, including China Investment Corp, the nation’s sovereign wealth fund and one of Noble’s largest shareholders. In a June rights offer that raised $500 million, CIC took its full allocation of shares and got a second seat on the board. In another fund-raising move, the company last year sold its remaining 49 percent stake in the Noble Agri Ltd. business to China’s Cofco Corp. for $750 million in cash.
“The equity raising was the best solution, but it wasn’t easy,” 76-year old Elman said, declining to comment further on the potential new investor. He founded the business in 1986 after a career that began as a teenage scrap-metal laborer in England and included senior positions in legendary trading house Philipp Brothers.
A strategic investor could be “a shot in the arm” for the company, Nirgunan Tiruchelvam, an analyst at Religare Capital Markets in Singapore, wrote in a report. The company’s shares, which have fallen 54 percent this year after a 65 percent collapse in 2015, jumped 9.5 percent to 13.9 Singapore cents on Monday.
Noble has saved several hundred million dollars by exiting what it says are low-margin areas such as European power and gas and some metals trading. The company is selling its once-core Noble Americas Energy Solutions business in a deal it hopes could raise about $1.25 billion. The trader has reduced overhead costs this year by about 20 percent, saving $100 million, according to Elman. Headcount will be about 1,000 by the end of the 2016, down from 1,500 a year earlier.
Elman painted a difficult path ahead as the company returns to its roots as a smaller trader with fewer assets. After posting a second-quarter net loss of $54.9 million and an increase in net debt, the trader said its priority is boosting cash flow ahead of earnings. It made a loss of $1.7 billion in 2015 after taking writedowns of $1.9 billion.
“We don’t want to be the biggest, we want to be nimbler, smarter, smaller,” Elman said. “The process to get the company to the right size and to profitability will take between one and two years.”
The company has lost almost 90 percent of its market value and its coveted investment grade credit rating, weighed down by debt and slumping commodity prices.
The trouble started in February 2015, when a group called Iceberg Research criticized Noble’s accounting. The company dismissed the allegations as the work of a disgruntled ex-employee and embarked on ongoing litigation against him. In addition to Iceberg, short-seller Muddy Waters LLP joined the fray. Noble rejected Muddy Waters’ allegations as well.
For months, the trader sought to fend off the attacks, but as write downs mounted, it changed course. Former Chief Executive Officer Yusuf Alireza quit in May and days later the company announced the emergency rights issue and said Elman would step down within 12 months. Jeff Frase and William Randall were appointed new co-CEOs.
The biggest challenge may come between April and May next year, when Noble has to refinance millions of dollars in credit lines. Net debt increased to $3.92 billion at the end of the second quarter, from $3.69 billion three months earlier. Elman said that, with time, that number will fall and profits will return.
“We aim to return to the kind of return-on-equity we had when we started two decades ago,” he said. “15-20 percent per year.”