Noble's cash call a one-year reprieve
Noble’s cash call should buy it a year of breathing space.
The embattled commodity trader is tapping its long-suffering shareholders for
US$500 million, days after its chief executive resigned. Chairman Richard Elman
has also announced plans to step down in the next 12 months. The main question
for investors, however, is whether Noble's core business can consistently
generate cash.
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Planned disposals, if successful, will persuade investors worst is over
Peter Thal Larsen
04 June 2016
Noble’s cash call should buy it a year of breathing space. The embattled commodity trader is tapping its long-suffering shareholders for US$500 million, days after its chief executive resigned. Chairman Richard Elman has also announced plans to step down in the next 12 months. The main question for investors, however, is whether Noble's core business can consistently generate cash.
Ever since critics started challenging the Singapore-based company's accounting and financial position last year, investors have been speculating about a possible equity injection from an outside group. In the end, Noble appears to have concluded the best available option was to ask its existing owners for the money.
Shareholders who have watched the stock halve in value in less than three months could be forgiven for being sceptical about a deeply discounted one-for-one rights issue. At least Mr Elman and China Investment Corp, which together own almost a fifth of the equity, are stumping up their share. A consortium of large banks is underwriting the rest. This allows all shareholders to avoid dilution, while ensuring the company definitely gets the cash.
The fundraising helps further lift the financial cloud hanging over Noble. Combined with proceeds from a planned sale of its US gas and electricity distribution arm and reductions in working capital, the group reckons it will have enough to repay the US$2 billion of bank debt that is due by the end of 2017. Meanwhile, a US$3 billion credit line secured earlier this month reduces the strain on its trading business. Though Noble shares dropped 12 per cent to S$0.265 in the morning of June 3, they remain well above the notional price of S$0.205 after factoring in the rights issue.
Shareholders trying to decide whether to take up their rights still face plenty of uncertainty, though. The first question is who will replace Mr Elman, who founded the business three decades ago. The second is whether Noble can consistently generate cash: the rights issue barely covers the US$486 million operating cash outflow in the first quarter of the year. Noble blamed doubts over its short-term financial position - which have now eased - for the strain on its finances. If it can execute on planned disposals, the commodity trader should have at least one year to persuade investors that the worst is over. Reuters