Bloomberg - March 15
By Tan Hwee Ann
Noble Group Ltd., the commodity supplier backed by China Investment Corp., wants to buy and build coal mines, ports and plantations to benefit from rising Asian demand, Chief Executive Officer Ricardo Leiman said.
“Energy and agriculture are the primary drivers for our growth,” Leiman, 43, said in his Hong Kong office. “That will drive 70 percent of our earnings growth.”
Noble aims to double profit to $1 billion in three years as consumption of sugar, grains, coal and other resources increases in Asia. The Singapore-listed company raised about $5 billion in debt and equity last year as it added coal mines in Australia, with China’s sovereign wealth fund becoming its second-largest shareholder.
“Noble’s efforts and expansion to integrate its pipeline capacity will boost its earnings growth,” Lee Wen Ching, an analyst at OCBC Investment Research Pte., said by phone from Singapore. “Noble is well-capitalized and will be able to take advantage of any acquisition opportunities.”
Shares in the company more than tripled in the past year, the best performance on Singapore’s Straits Times Index, as investors bet it will benefit from the economic recovery. Profit slipped 4 percent to $556 million last year during the global recession after hitting a record in 2008. The stock rose 1.8 percent to close at S$3.39 in Singapore.
“We see opportunities to buy agriculture assets like ports, storage, processing units and we’re very interested in palm oil plantations,” Leiman said. Noble is looking to add oil and gas distribution businesses in the U.S. and elsewhere. It’s also studying opportunities to invest with CIC, which last September spent $850 million buying a 15 percent stake.
“We have a strategic alliance to develop an agriculture platform,” he said. “Primarily, it’s to buy assets that’s most interesting for Noble and China, not only as an investor, but also as a supply need for China.”
China is the world’s largest grain consumer and second- largest sugar buyer.
Noble in December agreed to a deal that will make it the largest shareholder in Australia’s Macarthur Coal Ltd., the world’s biggest exporter of pulverized coal used by steelmakers. It also bought assets from SemGroup LP in the U.S., gaining fuel terminals, storage plants and contracts in six states including Texas and Kansas.
The purchase means Noble owns 17 percent to 18 percent of the distillates and gasoline distribution business in mid- continent U.S., Leiman said. The company continues to “look for an opportunity to consolidate in the region, as here we can be a significant distributor,” he said, without identifying targets.
“There’s a big compression in the market, with smaller companies that don’t have the capital, and banks don’t want to finance,” Leiman said. That’s giving Noble, which also produces ethanol, an opportunity to grow, he said.
Noble has embarked on a building spree, including a $214 million oil tank terminal in Netherlands, warehouses and sugar refineries in Brazil, and coal mines in Indonesia and Australia.
The company also hired more than 100 people in the past two years for its energy business, Leiman said, picking up traders and executives during the financial crisis.
“We saw the opportunity to attract a team of people in London and the U.S., to build a comprehensive business” in energy, he said. All the additions, both in assets and manpower, will “start generating some of the revenue” growth by the end of the fourth quarter, he said.
Energy and Agriculture
Energy and agriculture accounted for about 72 percent of Noble’s gross profit last year. Capital expenditure was $1.1 billion in 2009, double the previous year, according to Noble’s earnings presentation in February.
“We’ve already started seeing some of the contributions from its growth efforts in the fourth quarter of last year in their energy segment,” said OCBC’s Lee.
Spending should drop this year, unless there’s a “great opportunity,” Leiman said. The company prefers to build rather than acquire, he said.
The commodity market outlook so far this year “feels uncertain,” Leiman said to answer a question about the global economy and tightening concerns in China. “It’s been difficult for customers to have strong views on stocking on or destocking.”
Leiman pointed to swings in the prices of sugar, and possible changes to the way iron ore prices are settled. Raw- sugar futures have plunged 27 percent this year in New York. Vale SA, the world’s biggest iron ore producer, wants to drop annual price settlement in favor of shorter-term contracts, an analyst at UC361.com said last week.
“China is the least of my worries,” Leiman said. “There’s definitely social, economic restructuring which will happen for many years. It’s clear jobs will be created, the agriculture business will need to be modernized.”
To contact the reporter for this story: Tan Hwee Ann in Hong Kong at [email protected]Last Updated: March 15, 2010 05:27 EDT