Noble Group

[desmondxyz]

Big sell off in the afternoon, bad news again ?

http://infopub.sgx.com/FileOpen/Response...eID=415234

Wow...very fast response....Nothing unusual...

[cfa]

No smoke without fire ?

[cif5000]

T+3
Selling the rights shares that will soon be credited.

[CY09]

Using yahoo's adjusted share price as reference, Noble has never been sold this low since 2004! The closest was in Oct 2008, when Noble was being priced at an adjusted close of .20!

However, price is irrelevant and what matters is its balance sheet. Q2 results will be a good basis for me to analyse. In addition, one has to remember about the 500 mil rights proceed which will not be reflected in Q2 results when they are released.

<Interested and monitoring>

[Clement]

I disagree with simply looking at the balance sheet. I think when discussing Noble, we have to share our assumptions about its business model. Let me start with mine.

Warning: conjecture and just sharing my thoughts for discussion purposes.

Noble provides supply chain services to consumers of raw materials. Such services include sourcing for the lowest cost producers, processing raw commodities into a more usable form and storing the materials for their customers.

As an asset light company, viability of its business depends on Noble’s ability to source for cheap commodities. In order to secure cheap supply Noble has to sign off take agreements which provides the producer with a guaranteed customer for future production at a slight discount to a reference price. These off take agreements are held at fair value on the balance sheet.

One of the ways Noble secures better terms on off take agreements is to own a stake in the producing asset and / or provide financing for the development phase of the producing asset. The off take signed with the production asset increases its value or ability to get financing (guaranteed customer) and Noble then disposes of its stake at a gain. This might explain the strange M&A activities highlighted by Iceberg.

Given my conjecture, the key business risks are:
1) Inability to sell the commodities it has promised to buy with the off take agreements profitably.
2) Higher finance costs on trade financing required to finance the promised purchases further erodes the thin trading margins.
3) Inability to secure favorable off take agreements in future due to balance sheet limitations.
4) Customers deciding to pursue upward integration during this period of low production asset values.

My key concern is that, after all the controversy last year and knowing its financing needs, Noble’s management had every incentive to deliver positive operating cash-flow in its 1Q16 results and yet reported operating cash outflow. If they could not generate positive cash flow from operations when the company’s fate kind of depended on it, I have my doubts about the viability of the business.

[CityFarmer]

Commodity Trading Firms (CTFs) e.g. Noble's business model, is much more than Clement's description.

CTFs, gains from arbitrage activities, via logistic, storage and processing services. The margin is thin, thus volume matters. Credit facilities are necessary to leverage up. Hedging is part of the business model, where credit rating matters

What make the success of a CTF?

- Risk management, business processes and connections. We can safely assume the processes/connections remain sound over the last 1-2 years.
- Talent pool. It is a concern, with the brain-drain recently. I reckon, Noble is still having sufficient talent pool to keep biz going in good shape.
- Low-cost hedging and credit facilities. It is the "one" that is bringing down Noble, IMO.

Hedging and credit facilities are tightly linked to balance sheet. Once the "issues" are improving, the Noble biz, will gradually normalize. Talent is very mobile, thus will be solved in due course.

In short, we should focus on the "balance sheet" matters, knowing it is the root cause of the recent crisis.

(sharing view on the topic, and very recently vested)

[BlueKelah]

Which are the bank's bacKing noble? Will it be at risk of voluntary liquidation too??

Sent from my SM-T800 using Tapatalk

[CY09]

A large consortium of banks are backing it (including DBS and UOB).

Based on the recent banks that were underwritters for the rights, I think the major bankers are: HSBC, Morgan Stanley, DBS, SocGen and ING bank

[PkNanas]

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In short, we should focus on the "balance sheet" matters, knowing it is the root cause of the recent crisis.
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I agree. The just successful completed Right Issue increase the Shareholders' Equity, and exactly addressed and improved the 'balance sheet'.

[cfa]

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In short, we should focus on the "balance sheet" matters, knowing it is the root cause of the recent crisis.
.
.

I agree. The just successful completed Right Issue increase the Shareholders' Equity, and exactly addressed and improved the 'balance sheet'.

The management was aware of the problem , that was why they carried out the capitalization exercise !