Noble Group Rights Issue - SGX's MTP Rule will leave a bitter aftertaste

Company Background

Noble Group manages a portfolio of global supply chains covering a range of industrial and energy products. Operating from over 60 locations and employing more than 40 nationalities, Noble facilitates the marketing, processing, financing and transportation of essential raw materials. Sourcing bulk commodities from low cost regions such as South America, South Africa, Australia and Indonesia, the Group supplies high growth demand markets, particularly in Asia and the Middle East.

See company website for more info:
http://www.thisisnoble.com/


Rights Issue

Noble has proposed renounceable underwritten rights issue  of 6,535,409,562 new ordinary shares of HK$0.25 each in the capital of the Company at an issue price of S$0.11 for each Rights Share on the basis of one (1) Rights Share for every one (1) existing ordinary share of HK$0.25.

Details of the issue are in the document below:
Noble Rights Issue


SGX's MTP Rule to affect Noble's Rights Issue?

SGX's Minimum Trading Price (MTP) rule is expected to have a negative impact on Noble's right issue and future share price movements.

When the rights issue was announced, Noble's share price stood at 30 cents.   I would speculate that the rights price was partly fixed with the MTP in mind.   At 11 cents for the rights offer, the theoretical ex-rights price for Noble would have been (30+11)/2 = 20.5 cents.   This would have kept Noble above the 20 cent requirement level.

However, the rights issue announcement was not too positively taken and the price dropped last Friday (3 June 2016) to 26 cents.   Theoretical ex-rights price is now (26+11)/2 = 18.5 cents, which puts Noble into MTP-territory.    Unless the share price moves back up above 20 cents, we are looking at an eventual share consolidation.

Share consolidation would be a further dose of bad news.  Imagine having forked out money for a rights issue and getting more shares and then having it reduced back to fewer shares again!   I am certainly no big fan of the MTP - to me it has destroyed a lot of value for our companies and therefore shareholders and investors on the SGX.   More often than not, the share price after consolidation drops significantly again after the exercise and shareholders are far worse-off.

I believe that Noble's share price has further to fall prior to the rights issue.   The rights issue effect has probably not sunk into all investors' minds yet and not all have reacted to Friday's share price post announcement.    We are probably looking at another 4-cent drop to about 22 cents prior to the rights issue.

To me, MTP-related share consolidation for Noble seems almost certain to happen post-rights and investors should consider their options carefully regarding the rights issue.

I have about 200 shares in Noble left over from many years ago when I elected for scrip dividend.  Time now to ponder on how to react to the rights issue.