Noble Group

[dydx]

Many people - mostly traders, but including many investors - would give Noble a shot, mainly because of the name and its so-called blue-chip status, despite the risks of the group's commodity trading business and high debts. But it does border and puzzle me - and I am quite sure to many investors as well! - when Noble's share price got bashed down by a terrible $0.425 or 26.5% in a single session yesterday. This is not normal for a blue-chip!

[egghead]

I will not be surprised that among yesterday's sellers were short sellers. Notice that the billionaire founder picked up 10,000,000 shares (not 100k, 500k, but 10m) in the market yesterday at $1.19.

[Musicwhiz]

Many people - mostly traders, but including many investors - would give Noble a shot, mainly because of the name and its so-called blue-chip status, despite the risks of the group's commodity trading business and high debts. But it does border and puzzle me - and I am quite sure to many investors as well! - when Noble's share price got bashed down by a terrible $0.425 or 26.5% in a single session yesterday. This is not normal for a blue-chip!

Personally, I feel the selling was probably over-done as there is usually over-reaction bias when it comes to unexpected negative news events. With the headlines screaming "First quarterly loss in 14 years", I think most people would just panic and rush for the exits. Blue-chip or not, I think expectations have been pushed too high for a company like Noble, so inevitably when the crunch comes, it would be rather drastic and shocking.

Then again, I must say I don't know how to value a Company like Noble Group with its high debts and lack of revenue visibility. Perhaps there will be a smarter person out there who can do a better job than me.

[Temperament]

Can anyone tell me why this is a STI components stock yet it is not approve by CPF board?

[egghead]

I didn't notice it until you pointed it out. As it turns out, several other STI component stocks, including Genting, GAR, HKLand, JMH, JSH are not approved for CPF investment.

[Nick]

Can anyone tell me why this is a STI components stock yet it is not approve by CPF board?

It is a HK company. CPF can only use to invest in Singapore incorporated coys. Pls correct me if I am wrong.

[egghead]

The following is taken from Reuters web site

By Rene Pastor

Nov 10 (Reuters) - Global commodity trading houses have long defended their billion-dollar profits -- the subject of ire and envy by farmers, miners and small producers -- as just reward for taking big risks in opaque markets.

This year's gyrations in the cotton market supported that mantra as a "perfect storm" of volatility made losers out of some of the market's smartest traders, sapped profits and toppled a CEO. And the damage may not be over.

In the aftermath of a roaring rally that quadrupled cotton prices in six months only to fall by more than half, farmers put merchants like Glencore International and Noble Group -- the critical middlemen who buy cotton from farmers and then turn around and sell it to mills -- on the hook for massive losses.

"No one got away unscathed," says Ron Lawson, a long-time trader with brokerage logicadvisors.com in Sonoma, California.

Noble reported its first quarterly loss in more than a decade on Wednesday, and analysts blamed part of a $17.5 million loss on cotton. The company also said its second CEO in two years resigned.

Others also suffered. Mark Allen, who had been hired from Noble Group as Glencore's head of cotton, departed the firm following losses, according to a source with knowledge of the situation.

U.S. agribusiness and trading giant Cargill Inc, the world's No. 2 cotton trader, posted a 66 percent drop in quarterly profit, but did not specifically blame cotton.

The focus is now on Olam International , which recently expanded its cotton business and is ranked behind the big three of Louis Dreyfus's Allenberg Cotton, Cargill and Noble. It reports earnings on Monday.

Cotton is a very small market by any measure. Open interest in the U.S. benchmark futures contract on the Intercontinental Exchange was about $8.5 billion on Thursday, 20 percent as much as corn and only 6 percent as much as U.S. crude.

But it has claimed its share of victims. In 2008, an abrupt price spike drove two long-time cotton merchants out of business. Paul Reinhart filed for bankruptcy; Weil Brothers quit the trade, blaming volatile market conditions.

The two biggest merchants, Allenberg and privately-held Dunavant Enterprises, merged the following year in an action that traders said was a result of cotton market volatility.

DEFAULTS, CONTRACT DISPUTES HIT NOBLE, OTHERS

Even months after prices cooled, the fallout from what Glencore called an "unprecedented period of volatility" in cotton is still being felt.

Cotton prices on the ICE Futures U.S. exchange soared from U.S. 60 cents a lb in August 2010 to a record of $2.27 in March -- topping the record peak in the U.S. Civil War in 1861 to 1865 -- and then eventually dropped to about 96 cents by the end of October 2011.


That kind of roller coaster would be enough to roil any market, but the impact for trading houses was multiplied by the habit of U.S. cotton farmers to simply walk away from contracts in search of larger returns. While default is a risk in any cash commodity market, it is near endemic in cotton.

The London-based International Cotton Association, which is in charge of settling cases of this nature, has been deluged by arbitration requests this year.

Trade sources said about 200 arbitration cases have been filed so far in 2011. In a normal year, the sources said the number of cases would be about 10 to 20. The amount involved in the cases this year is estimated to be about $2 billion and it could take years for the matter to be resolved.

FARMERS DON'T DELIVER

It unfolded like this.

U.S. farmers began selling forward cotton delivery contracts around September and October, as prices slowly ascended to $1 a lb, a level that looked rich given prices had only exceeded that once in the past 50 years.

But prices really shot higher after news of floods in Pakistan and poor yields in China, the world's biggest producer and consumer of cotton, set off a frenzy of panic buying that accelerated gains.

Noble and other trading houses who had bought cotton from these farmers near the $1 level awaited delivery of it.

But as cotton raced past $1 on its way to $2.27 a lb in early March, farmer defaults in the United States and other producing countries mushroomed as growers "washed out" their contracts, reselling the cotton on the spot market.

"The producers sold cotton and they didn't deliver. (Noble and other trade houses) had to buy cotton in the open market," said Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures in Atlanta, Georgia.

Glencore explained: "The period of high (cotton) prices resulted in an industry-wide environment of elevated contract performance risk and Glencore, along with many other merchants, incurred 'opportunity costs/losses' associated with various suppliers not meeting their delivery commitments."

They then got hit again by their buyers.

Textile mills in places like Bangladesh, China and Indonesia that had bought the cotton at $2 a lb or higher suddenly found that demand from their customers had withered as prices spiked, and they no longer wanted or needed costly cotton.

They refused to take delivery, leaving merchants holding millions of bales as prices crashed back to $1.

"The merchants got bit on both ends of the deal," said Lawson.

NOBLE SAID HIT IN MARKET SQUEEZE

What also hit Noble was a squeeze in the cotton market during the ICE delivery period for the May and July cotton contracts, the traders said.

Since only U.S. cotton can be delivered to the exchange and 90-95 percent of it had been sold by March, the sources said Noble found itself scrambling to secure cotton and was forced to pay up when it could not do so, they said.

Data from ICE Futures showed that of the 3,928 lots delivered against the tape of the May cotton contract, a total of 3,898 lots were stopped by Term Commodities, which traders believe was acting on behalf of Allenberg Cotton Co, the world's biggest trading merchant.

Noble was said to be on the other side of the trade.

"They passed up on an opportunity to get out and (backed) themselves into a corner," a broker familiar with the situation said.

[Jared Seah]

I think this term "CPF approved" has misled rather than helped...

Well intentions but it's the same "mental trap" as MAS approved, Govt approved, XXX Association/Society approved...

It lulls some investors into false sense of security or complacency... Oh! This stock is XX% owned by Temasek, so safe one!

[Temperament]

I think this term "CPF approved" has misled rather than helped...

Well intentions but it's the same "mental trap" as MAS approved, Govt approved, XXX Association/Society approved...

It lulls some investors into false sense of security or complacency... Oh! This stock is XX% owned by Temasek, so safe one!

Hi SMOL,
Me agree with you. i think up to today, most novices will think so. Even some not so new to the market too. Like many people "KENA" with CPF approved "S CHIPS". Of course if not approved by CPF, you have no money to buy leh.
Or very little money to buy. So be careful with your CPF buying fund.

[Musicwhiz]

Business Times - 12 Nov 2011

Noble Group founder buys shares, calms investors

NOBLE Group's founder Richard Elman stepped in yesterday to calm Noble Group investors, who suffered a US$2 billion hit on Thursday as the stock fell sharply on news of a quarterly loss and the resignation of its CEO.

Besides buying Noble shares on Thursday, Mr Elman told Reuters yesterday that the resignation of the CEO was not due to the quarterly loss.

The Singapore-listed commodities trader saw its share price plunge by more than a quarter on Thursday, hit by the surprise resignation of Ricardo Leiman and its first quarterly loss in more than a decade.

The shares recouped some of the losses in early trade yesterday, rising as much as 4 per cent, but ended unchanged at $1.18. Noble said late on Thursday that a vehicle linked to Mr Elman's family bought 10 million shares, raising its interest in the firm to 21.53 per cent from 21.37 per cent.

Mr Elman, who is now acting CEO and chairman, told Reuters in a phone interview yesterday that the company thought that it would be better to announce the departure of Mr Leiman before the planned listing of its agricultural unit.

'It was planned for some time, and we thought it would be better to get this out of the way since he will not be on the board of the new company (Noble Agri),' Mr Elman said, adding that 'it was coincidence of timing' that the announcement came a few hours after Noble reported its poor quarterly results.

Mr Elman, who is already in his 70s and has been cutting back on his role at the company over the past two years, did not elaborate on why the former CEO wanted to leave.

The company said late on Wednesday that Mr Leiman was leaving for personal reasons. Mr Leiman had been in the job for less than two years.

Mak Yuen Teen, a professor at the National University of Singapore's business school who specialises in corporate governance, said: 'If this was long planned and not connected to the results, the company should have disclosed the succession plan earlier rather than two hours after a negative results announcement. It would be difficult to convince the market that they are unconnected.'

Noble is the latest casualty among commodity traders caught up in the defaults in the cotton business.

It blamed part of its US$17.5 million quarterly loss on cotton as farmers defaulted on their contracts following a gyration in cotton prices, which forced it to cover physical deliveries to its customers by purchasing cotton in the spot market at elevated prices.

Investors are now turning their attention to another Singapore-listed rival, Olam International, which reports earnings on Monday.

Olam is among the world's top cotton traders, with a network of more than 100,000 farmers, ginners and suppliers, according to the company's website, said Reuters.

'Olam's industrial segment, which constitutes 23 per cent of 2011 financial year gross contribution, is largely driven by its cotton business,' Goldman said in a research note.

'We believe investors may have concerns regarding these (cotton counterparty) risks, and the stock price may see short-term weakness until there is more clarity provided by the company.'

Mr Elman tried to calm investor jitters over the volatile commodities market, which has forced global commodities giants from Cargill to Bunge to report steep decline in profits.

'Honestly, it was a minor loss, it's mark-to-market, and probably some of it or all of it can come back in the next quarter or at some point in the future,' Mr Elman said, referring to the possibility that the company can claw back the losses if commodity prices improved. 'It is not a major issue - markets made it a major issue. But that's fine, let the markets do what they want,' he added.

According to Reuters, Noble said that its processing margins in agriculture remained under pressure, while below-average crop yields in the sugar business in Brazil and continuing counterparty defaults in the cotton industry had undermined the operating environment.

Bloomberg said in a report yesterday that Mr Elman, a former scrap yard worker who created Asia's largest commodity supplier by sales, is looking for a successor for at least the second time in as many years.

As Noble transforms from a trader to a producer of food, metals and energy commodities, Mr Elman has to look for an executive skilled not only in trading, but also in industrial operations, said Bloomberg.