Noble Group - OCBC Investment 2016-06-06: Ceasing coverage

NOBLE GROUP LIMITED N21.SI

Noble Group: Ceasing coverage

Noble Group proposed a 1-for-1 rights issue at S$0.11 each to raise US$522m (S$696.1m net); this is at a 63% discount to the S$0.30 reference price and 46% to the S$0.205 theoretical ex- rights price.

Company intends to use 20% of proceeds to repay part of its syndicated loan facilities (including the 2013 term loan maturing in May 2017) and revolving credit facilities (maturing in May 2017 and May 2018); 80% will be for working capital and general corporate purposes.
The rights issue is fully underwritten and chairman Richard Elman has committed to subscribe for US$50m and tail-swallow remaining rights and CIC to subscribe for its portion of the rights.

Noble also announced the next stage of recycling capital, by moving out of low-return businesses and into high-return growth franchises. It also intends to sell low-return assets across all business units.
But for recently proposed sale of Noble Americas Energy Solutions, management notes that the move was due to its limited long- term strategy fit with Noble’s key franchises, despite having strong prospects.
Going forward, Noble intends to focus on Hard Commodities, Gas & Power, and Oil Liquids.
Last but not least, it has stepped up its cost reduction programme; sees a planned headcount and SAO expense reduction in excess of 20% from current levels over 2016.

Meanwhile, Noble announced that chairman Elman wishes to step down as executive chairman over the next 12 months. However, given his commitment to subscribe for the rights, we believe Elman is just placing Noble into the hands of professional managers.
Still, the news which comes so soon after the departure of CEO Yusof Alireza earlier last week could raise some uncertainty over the company’s direction in the near term.

As the company will continue to prune and restructure its business to improve its liquidity profile, we believe it may take a while for the dust to settle, and until then, we may have limited clarity. Hence, we are ceasing coverage.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-06-06

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