(Updates with falling shares in first paragraph.)
Nov. 10 (Bloomberg) -- Noble Group Ltd. Chief Executive Officer Ricardo Leiman quit after the commodity supplier reported its first loss in about 14 years, citing defaults by U.S. cotton farmers and a plunge in carbon credits in Europe. The shares fell the most since 1998.
Chairman and founder Richard Elman, 71, will be acting CEO until talks with Leiman’s unidentified replacement are completed, the Singapore-listed supplier of energy, food and mining commodities said yesterday after the market closed. Noble reported a third-quarter loss of $17.5 million, compared with a profit of $157.2 million a year earlier.
The loss and Leiman’s resignation follow a drop in global commodities demand since June on concern that Greece and other euro-zone members may default on debt and China’s economic growth has slowed. Noble had reported four straight quarters of year-on-year earnings increases before yesterday.
“We’re disappointed with the performance, but we believe it is transitory in nature,” Leiman, 45, said on a conference call before the resignation was announced. The loss was based on “unrealized mark-to-market losses” created in “very volatile market conditions,” he said.
The Dow Jones-UBS Commodity Index fell 23 percent in the quarter to Sept. 30, its sharpest contraction in three years. Operating income from Noble’s supply chain almost halved to $242 million in the third quarter from a year earlier. Finance and administrative costs rose and the company posted a $207.7 million net loss on cash flow hedging and a $39.3 million mark- down on long-term investments.
Noble slumped as much as 27 percent, the most since Sept. 10, 1998, to S$1.175, and was at S$1.245 as of 9:02 a.m. local time, down 22 percent. The stock has dropped 44 percent this year, compared with the 13 percent decline in the benchmark Straits Times Index.
Noble “limited trading opportunities” because of the market volatility and uncertainty, Chief Financial Officer Robert Van Der Zalm said on the conference call. The company still has $10 billion in untapped credit facility commitments and no liquidity issues, he said. Van Der Zalm said the net loss was the company’s first in about 14 years.
A jump in cotton prices in the first half of the year, followed by a recent drop, led farmers to default on contracts, especially in the U.S., Noble said in the statement. Noble had to honor its obligations to cotton buyers by purchasing in the spot market, which eroded profit margins, the company said.
Earnings were also hurt by Europe’s Certified Emission Reductions, or carbon credits, dropping in price to as low as 6.35 euros on Nov. 3 from 13.70 euros on March 16. Noble’s remaining risk of losses on carbon credits is “very small,” Leiman said.
Noble increased its traded tonnage in all segments of the business, helped by acquisitions of sugar and coal assets over the last year. Noble made its biggest acquisition in December, agreeing to pay $350 million in cash and assume $600 million in debt for two sugar mills in Brazil.
Focusing on China’s soybean demand, South America’s ethanol business and Mongolia’s mining boom should make the company one of the “winners” as the world economy stabilizes in the next five years, according to brokerage Kim Eng Securities Pte.
“From agriculture to energy, the company has a finger in every pie as a commodity trader,” Kim Eng analyst James Koh said in a Nov. 8 report. Noble will benefit as Asian growth outpaces demand in the U.S. and Europe through 2016, he said.
Third-quarter sales jumped 40 percent to $20.9 billion, buoyed by a 34 percent increase in the volume of traded goods, Noble said in yesterday’s statement.
Initial Public Offering
Noble plans to raise about $700 million in an initial public offering of its agriculture unit, two people with knowledge of the matter said yesterday. The company hired JPMorgan Chase & Co. as a global coordinator and Citigroup Inc. and Goldman Sachs Group Inc. as joint bookrunners for a potential listing, said the people, who declined to be identified because the information is private. The IPO may take place in the first half of next year, they said.
Noble has yet to make a final decision on the spinoff and should it go ahead, it will remain a “major shareholder,” while a “partial divestment” will help raise funds to reinvest into the business, Van Der Zalm said.
Noble said it received permission from the Singapore exchange to list the unit, to be called Noble Agri Ltd., according to a statement yesterday. Noble said it may sell new stock in the unit as well as part of its stake.
Noble, which counts billionaire Elman and China’s sovereign wealth fund among its biggest shareholders, produces about 10 percent of the output it trades, buying the rest. Except for oil, gas and electricity, Noble sells 75 percent of its products to emerging-market economies.
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