Noble shares below MTP as they start trading ex-rights

The Singapore office of Noble Resources, a Noble Group subsidiary. The steep discount of the rights issue has further weakened Noble's already wobbling share price, which on an adjusted basis would have stayed below 20 cents since June 10.
The Singapore office of Noble Resources, a Noble Group subsidiary. The steep discount of the rights issue has further weakened Noble's already wobbling share price, which on an adjusted basis would have stayed below 20 cents since June 10.PHOTO: REUTERS

Counter risks being put on watchlist and may have to consider share consolidation

Noble Group shares are languishing below the minimum trading price (MTP) of 20 cents as a result of value dilution from its rights issue.

Market watchers see dim prospects for the embattled commodity firm and some even wonder if the management may soon have to consider share consolidation to avoid the MTP watchlist.

The stock rose 1.75 cents or 10.77 per cent to 18 cents yesterday as the counter began trading ex-rights ahead of the June 30 book closure date for its latest rights issue.

Last week, Noble won shareholder approval for the rights issue, which will place about 6.5 billion shares to raise $718.9 million at a price of 11 cents apiece.

While yesterday's close was an improvement on the theoretical ex-rights price of 16.25 cents on Monday, the steep discount of the rights issue has further weakened Noble's already wobbling share price, which on an adjusted basis would have stayed below 20 cents since June 10.

And if the share price does not recover, Noble's management may soon have to deal with the possibility of being put on the MTP watchlist - a mark commonly associated with penny stocks. The Singapore Exchange will put a company on the watchlist when its six-month volume-weighted average trading price is below 20 cents.

"It's very disappointing to see a former blue chip and one of Asia's biggest commodity traders slowly slumping into penny stock status," CMC Markets analyst Margaret Yang told The Straits Times.

"There is still a lot of time until (Noble) gets put on the watchlist, but the management may soon find itself having to consider the last resort of share consolidation to push the price above 20 cents.

"But, ultimately, it will make little tangible difference to the issues Noble faces, and the fair value of its shares," she said, adding that Noble is a "falling knife" that no investor can hope to catch safely.

The rights issue - which Noble said is to raise money for debt repayment and working capital - reflected the challenge for the company to maintain a strong balance sheet.

And despite the move to raise funds, Standard & Poor's on June 15 still cut Noble's credit rating to B+ over concerns of weak liquidity.

The company's problems came to a head late last month when chief executive Yusuf Alireza abruptly resigned. This was followed by company founder Richard Elman saying he will step down as chairman in 12 months' time.

"With these many problems - the difficult commodity environment, the loss of good talent in the management - I think having a share price at above 20 cents is quite low on Noble's priority list," said KGI Fraser Securities trading strategist Nicholas Teo.

"Certainly the rights issue has weakened the share price, but it's more of a technical adjustment. The money raised from this issue may actually be a much-needed boost to the confidence of Noble's financing and supply chain counterparts," he said.

A version of this article appeared in the print edition of The Straits Times on June 29, 2016, with the headline 'Noble shares below MTP as they start trading ex-rights'. Print Edition | Subscribe