SINGAPORE (BLOOMBERG) - Noble Group bonds surged by a record on Friday (June 3) after the Singapore-listed commodity trader asked shareholders for about US$500 million to replenish its capital and said founder and chairman Richard Elman will step down in the next 12 months.
With the rights issue providing a boost for creditors, the company's January 2020 US currency notes jumped 9.3 cents to 84.2 cents on the dollar as of 1:05 pm in Hong Kong, set for their highest close since August, according to Bloomberg-compiled prices. The securities are poised for their biggest one-day gain since they were sold in 2009.
Noble shares slumped as much as 13 per cent to the lowest since 2003 following the announcement of the discounted stock offering. The stock was down 13.3 per cent to 26 cents as of 2:09 pm.
The rights issue came after Noble completed a US$3 billion financing from lenders last month to bolster its balance sheet and appointed new chief executives to replace Yusuf Alireza as it seeks to recover from a commodity-market slump. Noble also intends to put its North Americas Energy Solutions business up for sale after selling its stake in Noble Agri, moves that are seen as sacrificing its future profits to alleviate short-term funding strains.
The trader announced a one-for-one rights issue of 6.535 billion shares at 11 Singapore cents each, a 63 per cent discount to its closing price on the Singapore Exchange on June 2. It's also backed by commitments from shareholders Elman and a unit of China Investment Corp. The cash call will raise S$718.9 million gross ptoceeds, of which S$22.8 million will be deducted for expenses.
"The rights issue is a big surprise at such a dilutive discount, and more so with CIC willing to share the pain," said Leong Wai Hoong, a senior money manager in Singapore at Nikko Asset Management Asia Ltd. "The company is inflicting pain on equity holders, which is good news for credit investors."
Noble bonds are rallying as investors continue to cover their short bets, Leong said.
Some 20 per cent of the net proceeds will be used to repay part of a syndicated loan due in May 2017 and two revolving credit facilities due in May 2017 and May 2018, Noble said in a filing to the Singapore stock exchange on Friday. The other 80 percent will be set aside for working capital and other purposes.
"Noble Group's capital program effectively takes out their long-term structural debt," said Dhiraj Bajaj, a money manager at Lombard Odier (Singapore) Ltd. "This is yet another major chapter in the simplification of the group. We expect the new management which has risen from the ranks as well as CIC's greater participation to ensure a more disciplined approach towards this realignment of capital."