Noble Group sells new shares at 7.5% discount

The supplier and trader of commodities raises $152 million through Asia's second primary share offering in a week, while an institutional investor sells $40 million worth of shares in Wharf.
Noble Group last night became the second Asian company in a week to raise fresh capital from a share issue. This suggests that the equity market is becoming a little more supportive after a couple of months with depressed share prices and extreme day-to-day price swings.

The global supply chain manager of commodities, including agricultural, metals, minerals and energy products, picked a good day to launch the deal with sizeable gains across Asian equity markets. In Singapore, the benchmark index rose 2.6% and Noble itself was up 3.7%. The share price has been on the rise in recent weeks after the company reported record earnings for 2007, which offered investors some proof that the groupÆs move into more upstream businesses over the past year or so does bring additional value.

One banker notes that expectations both among issuers and investors of what is possible to achieve in this environment have come down and the gap between the two groups have narrowed, making the pricing of primary share deals a bit easier. However, investors are still cautious on pricing as they try to achieve as much downside protection as possible and most deals are likely to price at the bottom or towards the low end of their offering ranges for some time yet until the market gains more positive momentum, adds another market participant.

The latter was true for Noble too, which priced its offering of 100 million shares at the bottom of the S$2.09 to S$2.12 range for a total deal size of S$209 million ($152 million). The final price represented a 7.5% discount to yesterdayÆs close of S$2.26, while at the top end of the range the discount would have narrowed to 6.2%.

The discount was slightly wider than the 6.7% achieved by China Communications Services on a $242 million placement of mainly new H-shares last Friday. That offering had the support of three high-profile strategic investors, which bought a combined $110 million worth of shares, but on the other hand, it was proportionately larger at about 22% of the H-share capital.

The Noble deal, which was arranged by JPMorgan, accounted for about 3.8% of the existing share capital and about 10 days worth of trading based on the daily turnover for the past three months.

According to a source, close to 40 investors came into the deal which was launched at about 6pm Hong Kong time yesterday and kept open for about four hours. There book was said to have been comfortably covered, although the bottom-end pricing suggests investors were not exactly fighting to get large allocations. The buyers included some existing investors as well as some names that were new to the company, including investors who had met with the Noble management at the annual Credit Suisse investment conference which is taking place in Hong Kong this week.

While the share price has recovered a quite nicely from the lows around S$1.55 in mid-January, it is still about 11% below the November highs around S$2.50 and most analysts have a ôbuyö recommendation on the stock. Commodities also remain a relatively attractive sector, and a company like Noble which basically facilitates the movements of commodities from the suppliers to the fast-growing users at the other end, while adding some value on the way, is a good way to play the sector without taking direct bets on commodity prices.

The company didnÆt specify the use of proceeds from the deal other than to say that the money will go towards general corporate purposes. It also told investors that it would like to have some more funds ready if it comes across more acquisition opportunities. However, a source familiar with the company noted that the strengthening of NobleÆs balance sheet will in itself help expand its business since a bigger equity base will allow it to take on more inventory of various products.

Separately, an unidentified institutional shareholder sold $40 million worth of shares in property, retail and telecoms conglomerate Wharf Holdings through a fixed-price placement which was completed in less than 10 minutes during the lunchtime break yesterday. The deal was tiny as a portion of the company, accounting for less than 1%, but the 8 million shares represented about 1.6 trading days, which means the price risk of doing the deal in the market was not insignificant. And since the seller didnÆt decide until lunch time to sell, he would most likely not have been able to offload the full amount yesterday.

The price of $37 equalled a discount of 1.6% versus the HK$37.60 where the stock finished the morning session, but was done at a slight premium to the previous dayÆs close of HK$36.70. A source said the tight discount was possible partly because of the small deal size, partly because Wharf had been a lagging other Hong Kong property investors recently.

The share price fell in the afternoon after the transaction was completed, finishing the day at HK$36.55. This leaves it down about 22% from a mid-January closing high of HK$46.90.

The follow-on offering for China Communications Services last Friday, which was led by China International Capital Corporation, was the first primary share placement in Asia since CapitaRetail China Trust sold S$188 million ($132 million) worth of new units in late January with the help of Citi, DBS Bank and JPMorgan.
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