Noble Group surges as chairman pledges to 'right the damage'
JUN 11, 20157:54 PM
[SINGAPORE] Noble Group Ltd jumped by the most since September 2013, climbing from a six-year low, after the commodity trader's founder pledged in a letter to shareholders to "right the damage."
Noble surged as much as 11 per cent before ending 9.3 per cent higher at 70.5 Singapore cents by the close of trading in Singapore.
The stock slumped 43 per cent this year through Wednesday as brokerages downgraded recommendations and lowered price targets after previously unknown firm Iceberg Research questioned the company's accounting practices. Muddy Waters LLC said in April it had taken short positions on the stock.
"We will right the damage and will use all our best efforts to recover the share value," Chairman Richard Elman said in a letter sent to Noble shareholders Thursday. "There have been a lot of rumors, gossip, inaccurate statements and commentary from people who have nothing to do with Noble and probably do not even know what we do."
Yesterday's rise was just a knee jerk reaction to the Chairman's letter. This morning the reality has set in and the price has slumped to around 0.66 again by midday. In this type of market sentiment which is resonating not only in SGX but regional markets as well, even 20 chairman's letters are not going to swing the mood. IMHO Noble's credibility has taken some knocks after those "allegations" which did not seem to have been totally answered. And the issue of transparency is still a matter of grave concern. In view of its high dependency on external financing, and particularly on a revolving and not on a retiring basis, I would be concerned if I was a stakeholder. Luckily I am not. To me, the minute those "allegations" were made it was an expression of caveat emptor being lodged, especially following the revelation that Noble Group's assets had been overvalued (impacting its high profitability) they did an immediate write down of asset value.
What could Noble do to "right the damage'? Buying back its shares is clearly the weapon of choice now. It's a 'shock and awe' strategy. Noble bought back another 25 million shares in a single day. It can't do this everyday for the rest of the year, I am sure. What is weapon no.2 ?
A company is buying into its own shares using excess cash from its cash hoarde is totally different from a company buying into its own shares using money obtained from external sources. The latter is a case of borrowing from the capital market to shore up its share price, and is in no way a direct reflection of its share value. On the contrary, it can be viewed as a desperate move, depending on how you would look at it. I am not so sure whether it was a wise move for Noble Group to continue buying up its own shares from funds which they had just borrowed from the capital market. It could well end up being a case of double jeopardy if things do not pan out the way they expect because recovery of its share price, if it does happen, may only be temporal because its rise was "induced" and not from spontaneous market buying interest.
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