China's $200 billion sovereign wealth fund China Investment Corporation (CIC) will shell out $850 million for a 14.9% stake in Singapore-listed commodities trader Noble Group.
CIC will be issued 438 million new Noble shares representing a 12.91% stake. "The newly issued shares will provide the Noble Group with additional capital to pursue strategic investments in key agricultural markets globally," said Noble in a written statement.
Simultaneously CIC will buy 135 million shares from trusts associated with Richard Elman, Noble chief executive officer for another 2% shareholding. Elman's shareholding will go down to around 26%. "The shares sold by interests associated with Elman represent a small fraction of his holdings in the Noble Group and are only the second such sale by Elman since he founded the group," said the statement, as it sought to reassure investors that Elman is not reducing his involvement in Noble.
CIC will pay S$2.1137 ($1.4956) per share, representing a discount of 7.34% to the weighted average price at which Noble traded on the Singapore Exchange on September 14 and on September 15, until it was suspended from trading. The placement is subject to board approval by both the Noble and CIC boards. The release did not specify whether the shares CIC is buying are subject to a lockup.
CIC is not getting board representation or any minority rights more favourable than any other investor in the company, said a source close to the transaction. The decision to induct CIC as a financial investor is part of Hong Kong-based Noble's stated plan to transform itself from an asset-light, commodities trading firm into a company that straddles all elements of the commodities business including mining, transportation, etc. As part of this plan, Noble decided to bring in a long-term, strategic investor. Given the interests of China in general and CIC specifically in the businesses and markets in which Noble has interests, CIC was an obvious choice, added the source.
"CIC and Noble have agreed to enter into this partnership for the purpose of jointly investing in infrastructure assets and supply chain management related to agricultural commodities," said the statement. This is a financial investment for CIC, first and foremost, said the source. It is reasonable to assume the partners will pursue some deals jointly in the future but nothing is currently on the anvil, he added.
CIC recently paid $1.5 billion to become a long-term passive investor in Teck Resources, the largest diversified mining, mineral processing and metallurgical company in Canada.
Noble's agricultural activities include farm production in Argentina, Uruguay, and Brazil, linked to an internal logistic and storage capability. Noble's access to export markets is supported by five port facilities it owns in South America. Noble's other agricultural assets include crushing plants and sugar refineries.
The placement follows only days after rating agency Standard & Poor's upgraded its long-term corporate credit rating on Noble and changed the rating on Noble's debt to BBB- from BB+ on September 18. "The upgrade reflects Noble's satisfactory credit profile, strengthening risk management and satisfactory capitalisation that is supportive of the company's business expansion," said S&P.
S&P added that the rating also reflects the success Noble has had with integrating assets it has acquired. Earlier this year Noble pulled off a takeover of Australian coal miner Gloucester Coal, converting what was originally a hostile bid into a deal that was recommended by Gloucester's board of directors.
Noble is advised by Bank of America Merrill Lynch, who will earn a placement fee of up to 1.5% of the gross placement proceeds. Noble has worked with a host of advisers during the current year. It was advised by Citi on the takeover of Gloucester Coal. In May Noble and some of its shareholders raised $126 million from a placement of new and existing shares, in a deal arranged by J.P. Morgan and Cazenove.
J.P. Morgan advised CIC on its investment in Noble.
