Noble Group's vice-chairman sells $254 million worth of shares

Harry Banga, the vice-chairman of Noble Group, last night sold close to one-third of his shares in the company through a placement that attracted more than 80 investors. The deal was priced at the middle of the offering range, allowing him to raise S$356.5 million ($254 million).

The sell-down was not unexpected after Singapore-listed Noble announced in February that Banga plans to step down from his day-to-day responsibilities at the company in June, and investors didn't seem too worried about the fact that a company insider was cashing in while the stock is trading near record highs.

The deal, which was jointly arranged by Citi and Goldman Sachs, comprised 115 million shares, or about 3% of the company, and will see Banga's stake in the supply chain manager and commodities trader drop to 6.3%. The shares were offered at a price between S$3.05 and S$3.15, which translated into a discount of 4.8% to 7.9% versus yesterday's close of S$3.31.

Initially, there was quite a lot of demand at the wide end, but as more new investors (as opposed to existing shareholders) came into the book, the discount narrowed. And 90 minutes into the bookbuilding, the leads went out with a message saying orders below the mid-point of the price range would miss out. After that, most of the limit orders moved to S$3.10, which is also where the deal priced. This resulted in a 6.3% discount to the close.

Sources said the deal was more than two times covered when it closed after two-and-a-half hours. Slightly less than half the orders came from hedge funds, but volumes -- and allocations -- were skewed towards long-only funds. The order book included existing shareholders, but most of them came in at relatively small sizes.

The interest would have been underpinned by the fact that analysts generally see further upside for the share price as the global economy continues to improve. The lower-than-expected earnings in 2009 were mainly caused by a weak agricultural business which suffered because of droughts and supply shortages. These are viewed as temporary headwinds that will reverse in 2010, according to a recent research report by CLSA.

In the same report, the Asian brokerage house noted that Noble may also benefit from the global rise in inflation risk. "In the past, higher prices have led to the materials sector becoming a top outperformer and with Noble offering a single name entry into multiple materials both upstream and midstream, we believe the group will be a key beneficiary of a return to inflation," it said.

Of the 14 analysts who cover the company, according to Bloomberg, 11 have a "buy" recommendation on the stock and only one analyst recommends clients to sell.

Banga chose to sell a few days after Noble's share price hit an all-time high of S$3.43 after recovering from a sell-off in January. The stock has almost tripled in the past year and the recovery from the recent dip suggests that investors are reasonable comfortable with the measures taken by Noble's founder, Richard Elman, to ensure a smooth transition to the next management generation. Elman stepped down from his job as chief executive in January to become chairman and was succeeded as CEO by former chief operating officer Ricardo Leiman. And last month, Noble announced that Banga will hand over his responsibilities within Noble's steel complex and logistics divisions. Appropriate business leaders have been groomed for this purpose and will shortly be assuming their new responsibilities, the company said.

Banga, who has been with Noble for 20 years, will remain a director on the board and will also focus on developing new and existing business relationships for the company, according to the February statement.

It is unclear whether Banga intends to divest more of his remaining stake, but for now investors seem to be viewing this sale as a diversification of his wealth as his day-to-day role at the company is reduced. His remaining shares will be locked up for 90 days following this transaction.

Noble is a global supply chain manager of essential raw materials whose portfolio includes agricultural, metals, minerals and energy products, as well as fuel terminals and storage facilities, ships for transport, ports and other infrastructure. It operates in more than 40 countries and serves more than 4,000 customers. In 2009 it generated just over $31 billion of revenues and posted a net profit of $556 million.