Published November 12, 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.
The big word used is SCM, Supply Chain Management, supplying the commodities, all the way from the farms gates to the factories floor.
Most have trading as their main activity, the risks associated, of which, they are supposedly able to hedge away due to their deep expert/intimate knowledge of the entire supply chain.
But, as an investor as opposed to trader, I have always wondered if the volatilities and uncertainties can truly be hedged away. Or to put it bluntly, if commodities is really a one way upward bet as some like Mr Bowtie (Jim Rogers) wants us to believe.
Of late, the greater danger is that these SCM purveyors are buying up & owning the 2 extreme ends of the supply chain, either the farms/mines or the factories, in an effort to realise better & better margins.
The risks rises and the biz model switches from managing supply chains to owning & managing farms and factories with accompanying skillsets and asset ownership (high capex involved) risks.
I was particularly worried when Temasek got Goodyear as the CEO, in an effort to allocate more for commodities exposure. I hope with Goodyear gone, Big T's exposure has lessened.
Two commodities, sugar and cotton comes to mind, in recent months.
The cotton mkts volatilities in recent mths has certainly exposed the flaw in the so called SCM model.
US cotton farmers faced with escalating cotton prices reneged and did not deliver on their forward contracts preferring to resell on the spot mkts where prices have doubled. With the doubling of prices within a few short mths, the factories were priced out and their demand plunged, so the SCM guys got squeezed from both ends, stuck with high priced cotton inventories when cotton prices plunged.
Apparently, all the SCMs; Cargill, Glencore, Noble and Olam? are all hit......
Anyway, I have always never been smart enuff to figure out Noble's founder Richard Elman's financial statements, and find his SGX announcements too expressive and colorful and lacking in detail for my understanding.