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Friday, 11 November 2011

Update: Noble tries to calm market after share plunge

SINGAPORE - Noble Group founder Richard Elman moved to calm investors, who suffered a US$2 billion hit after a sharp drop in its stock a day earlier, buying shares in the company and saying that the departure of its CEO was not due to a quarterly loss.

The Singapore-listed commodities trader saw its shares plunging by more than a quarter on Thursday, hit by the surprise resignation of Ricardo Leiman and its first quarterly loss in more than a decade.

The shares recouped some of the losses on Friday, rising as much as 4 per cent in early trade, after the firm said late on Thursday that a vehicle linked to Mr Elman's family bought 10 million shares, raising its interest in the firm to 21.53 per cent from 21.37 per cent.

Mr Elman, who is now acting CEO and chairman, told Reuters in a phone interview on Friday that the company thought it would be better to announce the departure of Mr Leiman before the planned listing of its agricultural unit.

'It was planned for some time and we thought it would be better to get this out of the way since he will not be on the board of the new company (Noble Agri),' Mr Elman said, adding 'it was coincidence of timing' that the announcement came a few hours after Noble reported its poor quarterly results.

Mr Elman, who is already in his 70s and has been cutting back on his role at the company over the past two years, did not elaborate on why the former CEO wanted to leave .

The company said late on Wednesday Mr Leiman was leaving for personal reasons. Mr Leiman had been in the job for less than two years.

'If this was long planned and not connected to the results, the company should have disclosed the succession plan earlier rather than two hours after a negative results announcement,'said Mak Yuen Teen, a professor at the National University of Singapore's business school who specializes in corporate governance.

'It would be difficult to convince the market that they are unconnected.'

Noble shares are trading up 1.3 per cent by mid-day on Friday.

Wild cotton

Noble is the latest casualty among commodity traders caught up in the defaults in the cotton business.

It blamed part of its US$17.5 million quarterly loss on cotton as farmers defaulted on their contracts following a gyration in cotton prices, which forced it to cover physical deliveries to its customers by purchasing cotton in the spot market at elevated prices.

Investors now turn their attention into another Singapore-listed rival, Olam International, which has a large cotton trading business, reports earnings on Monday.

Olam is among the world's top cotton traders, with a network of more than 100,000 farmers, ginners and suppliers, according to the company's website.

'Olam's Industrial segment, which constitutes 23 per cent of 2011 financial year gross contribution, is largely driven by its cotton business,' Goldman said in a research note.

'We believe investors may have concerns regarding these (cotton counterparty) risks and the stock price may see short-term weakness until there is more clarity provided by the company.'

Shares in Olam dropped 2.9 per cent on Friday after falling as much as 7.6 per cent a day earlier.

Noble's Mr Elman tried to calm investor jitters over volatile commodities market, which has forced global commodities giants from Cargill to Bunge to report steep decline in profits.

'Honestly, it was a minor loss, it's mark-to-market and probably some of it or all of it can come back in the next quarter or at some point in the future,' Mr Elman said referring to the possibility that the company can claw back the losses if commodity prices improved.

'It is not a major issue, markets made it a major issue. But that's fine, let the market do what they want,' he added.

Noble said its processing margins in agriculture remained under pressure, while below-average crop yields in the sugar business in Brazil and continuing counterparty defaults in the cotton industry had undermined the operating environment. -- REUTERS

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