In the world of aviation, one of the most dreadful radio distress signals is “Mayday!”. When the pilot-in-command made this signal, he would be facing some emergency situations that might be potentially life threatening. On 4 June 2016, it certainly was Mayday for Noble Group when the company’ share price tumbled to its lowest since 2003 after the announcements of a rights issue to raise $500 million and the shock resignation of founder, Richard Elman. This latest episode marks another embarrassing chapter for Noble Group after it was kicked out of the benchmark Straits Times Index in March 2016.
Today, Noble Group’s share price tanked further when the commodity trader announced that the proceeds for the rights issue will be used for working capital instead of paying down its massive debt. Obviously, investors are not happy with the management’s move given that only 20% of the proceeds from rights issue will be used to pay for the net debt of $3.7 billion. Furthermore, the price of the rights issue is at a huge discount of 63% to its price of $0.30 at the date of announcement. As a result, many traders punished the share price and sent it tumbling by 13%.
The rot for Noble Group started in 2015 when it engaged in an epic battle with US short-seller Muddy Waters and research firm Iceberg Research over Noble Group’s questionable accounting practices and allegations of misleading debt levels. Whether who was right or wrong was immaterial but the market had spoken when Noble Group started sliding from $0.90 in 2015 to the current price of $0.23. And in the history of SGX-listed companies, there were very few successful turnaround stories.
I am not vested in Noble Group and have never invested in its shares before. Nevertheless, through the years, I have been monitoring this Singapore-listed commodity trader. One of the key reasons why I did not invest in this company is because I could not understand its complex business structure. Noble Group has run a business so diverse that it actually owns LNG business and trade coal, oil and metals.
At its peak, Noble Group was trading at $2.34 in 2014 and was one of Singapore blue-chip darlings. The first sign of trouble started in 2011 when its previous CEO Ricardo Leiman resigned after Noble Group incurred losses of $17 million in that 3rd quarter due to losses from the carbon credits. Then subsequently, the plunging prices of metals caused a negative impact on its share price.
To put things in perspective, investors of Noble Group would not be so concerned if the share price corrections were due to losses in business operations as there are always business cycles in every industry. However, when short-sellers started to target the company, warning siren should have set off among investors. This is the classic example of the power of the Big Boys, also known as The Whales.
Retail investors should have known better that they are just small fish in the vast ocean and that the odds of winning the stock market is stacked heavily against them because of the presence of The Whales. You either avoid or swim with The Whales. Otherwise, chances of you suffering losses in your investment are potentially high. I saw many local finance bloggers who lost monies in Noble Group shares and a few of them have wisely cut losses. Hopefully they have learned some important lessons from their losses.
I believe there are many Singaporean investors who have bought Noble Group shares at a high of $2.14 and are now staring at massive paper losses. For them, cutting losses at this moment may be suicidal. For this group of investors, even if they decided not to sell off their Noble shares, they should be prepared to write off their investments as the share price would likely be suppressed at very low-level for a long time. At this rate of decline, Noble may even drop below SGX’s Minimum Trading Price requirement in no time and fall into the SGX’s watch-list. If this happened, Noble Group would be granted a grace period to buck up. Failing to do so would result in it being de-listed from SGX Mainboard.
The biggest problem with most Singaporean investors and finance bloggers is the lack of knowledge on portfolio management. Most of them love stocks and build their wealth portfolios solely with shares not knowing the risks involved. Most of them will hardly consider diversifying some of their funds into other real assets like bullion. If they have bought gold in December 2015, they would have made a paper gain of at least 18%.
With global economic growth expected to face uncertainties for at least the next few years, gold is the asset class to hold because of its traditional status as safe haven. In the first quarter of 2016, the tremors in the China’s stock market and the announcement of Japan to implement Negative Interest Rates Policy (NIRP) had sent gold spot prices up by 19 percent, making gold the best performing asset.
To build wealth with gold, it makes sense to buy gold bullion in Singapore because of the business-friendly government policies which aim to transform the nation into a precious metal trading hub. To support this goal, investment-grade bars and coins are exempted from GST in Singapore. There are also no reporting requirements for buying, selling and storing of gold bullion to the taxman.
In Singapore, you can choose to buy physical gold from BullionStar, one of the largest online bullion dealers with a store-front shop at 45 New Bridge Road. With BullionStar, you can choose to buy gold or silver bullion online and have them delivered to your home or put them into ‘My Vault’ storage in BullionStar’s secure vault storage facility. Alternatively, you can choose to walk in and buy gold and other precious metals at BullionStar shop and showroom premises.
Setting up an online account is pretty simple and you can choose to pay in different currencies, including Singapore dollar and Bitcoins. In addition, the price is very transparency as BullionStar’s website displays the price premium and spread for each bullion. This allows buyers to make price comparisons online before making the purchase.
Join me in my investment journey and read my financial adventures for free! Through the sharing, my vision is to improve and change people’s lives. In school, we don’t learn how to budget, manage our finances, build wealth and invest our money. Instead, we are taught useless subjects which we would never put to use most of the times during our working lives.
Yet, managing our money is an important life skill that is critical to our survival in the society. Many people start to realize how it is importance of managing money only when they face the prospect of financial ruins, by then which would be too late for remedies. Thus, I started this blog to share articles on finances which I aspire to make a positive impact in others’ lives.
SG Wealth Builder engages Singaporeans on topics related to personal finance, entrepreneurship and investments, such as shares and real estate.