By all accounts, Asia is a high-speed growth machine and an economic wonder of the world. Richard S. Elman's Noble Group Ltd., a global commodity merchant, knows the truth of that better than most. He's both living off of and feeding the region's growth by providing the iron ore, steel, coal, and other basic materials that drive the region's prosperity. And his Hong Kong-based company is on an earnings tear. Thanks to the boom in prices of all manner of commodities, driven in large part by China, Noble's net earnings rose 367%, to $286 million, and its revenues nearly doubled, to $8.6 billion, last year.
Those are good reasons for Elman to be named a Star financier. But on top of everything else, Noble has been the best-performing stock on the Singapore benchmark stock index for five years. It boasts a $2 billion market capitalization and in March raised $700 million in a bond offering to possibly build up its commodity holdings and finance acquisitions. "I always wanted to build a world-class company in Asia," says Elman, 65. Noble operates in 60 countries. It sources, ships, and processes raw materials, energy resources, and food products for industrial and food companies in Asia, North America, and Europe.
Elman founded Noble in 1987 after a 10-year stint with Philipp Brothers, a commodity-trading firm that is now part of Citigroup (C), where he rose to be regional director of its Asian operations. But Elman concedes that he scarcely seemed destined for greatness when he was growing up in London. He flunked out of high school, and his parents got him a job at a small scrap-metal company, where he soon developed a keen interest in commodity trading. In 1969, at age 20, he headed to Japan, where he found work as a middleman between Japanese steel suppliers and U.S. manufacturers. Then, after his run at Philipp, Elman and other investors decided to launch Noble.
The company's evolution hasn't always been smooth. It hit a tough patch, for instance, when the 1997 Asian financial crisis crushed commodity prices. As a result, Noble lost $7.8 million in 1998. Still, Elman figured Asia's long-term prospects were stellar and that Noble would thrive as long as it could shield itself from price swings by offering a full range of services, from processing iron ore to shipping. "People weren't going to stop building or drinking coffee" in Asia, he says. "We went out and tried to find what type of services customers wanted."
The big challenge ahead for Noble is managing pricing risk if global commodity prices tumble. That could be caused by an unexpected financial contraction in China or capacity gluts in steel and petrochemicals, which some analysts are worried about. Elman thinks Noble would ride out any downturn. First, some 80% of the commodities it handles are hedged against price shocks. Second, while China may stumble, long-term growth prospects remain excellent.
Noble seems well-positioned to prosper from Chinese growth. With Beijing planning to build 30-plus nuclear reactors by 2020 to meet the country's energy needs, Elman wants to get into the business of importing, transporting, and processing uranium for China. He also sees a lucrative business in the global market for carbon credits that is emerging as a result of emission-control laws. Will these moves pan out? You can bet on this: If there are opportunities to make money in commodities, you will probably find Elman there. He may have started in a scrap heap, but right now Noble is gold-plated.
By Brian Bremner and Hans Henrik Thaulow