The fall of nobility

http://m.scmp.com/business/article/1975392/noble-groups-amazing-story-how-soar-then-fall-back-earth?amp=1

https://www.asia.finance/why-noble-group-may-never-recover-from-its-crisis

https://www.asia.finance/why-noble-group-may-never-recover-from-its-crisis

https://www.google.com.sg/amp/s/mobile.reuters.com/article/amp/idUSKBN1GZ1UF?espv=1

1) Noble, like Enron, had a great story to tell. True, no one outside the company was exactly sure how it made money but the proof seemed to be in the pudding as its share price rose and rose again. The heady rise in its market capitalisation was frequently punctuated with news of acquisitions and fabulous deals; only wimps questioned how they were leveraged.

2)  they are all suffering from acute amnesia. Some, however, claim not to have forgotten but are bitterly accusing Elman and his colleagues of misleading them. Others, with the benefit of hindsight, are busy claiming a degree of foresight that they remarkably kept under wraps.

3)It recorded a US$130 million net loss in the first quarter of 2017because of wrong-way bets on coal prices and dwindling liquidity. Meanwhile, prices of its bonds have dropped to levels that suggest traders see a high risk of default.

However, the company’s shares rebounded earlier this week as banks agreed to extend its US$2 billion credit facility until October. In exchange, creditors have asked Noble to find a strategic investor.

4) When the restructuring efforts are unsuccessful and even the founder of the company has left, in my opinion there is nothing much left to monitor about the company. Any assets it has left are merely mountains of debt and any chance of plausible turnabout play is most unlikely to occur.

My reflections
1) Noble group was a sombre reminder of what can go low can go even lower. Even a blue chip can have accounting irregularities and debt can lead to a death keel of any stock regardless of their potential.

2) Noble was on my checklist for the longest of times ever since it has fallen from grace. I have considered a short term trading play but have refrained from it ultimately. Partly due to hesitation about the financial state of the company, and another part due to the cyclical nature of the business.

3) Noble balance sheet is over leveraged and it is trading in commodities and derivatives that even I don't really understand. It's debt fueled growth looks pleasing in times of upturn for the commodities cycle, but also massive amplifies losses when it accumulated assets that are not generating sufficient returns.

It is already trading at absurd PE and PS ratios from the onset and when it's price heavily corrected due to the crisis of confidence, I was half tempted to go into it as an turnaround play, betting on the competence of the management. Ultimately, I did nothing and merely sat at the outskirts, looking at its news for any sign of revival.

The death keel came when the top management suddenly decided to abandon the sinking ship all at once. That was definitely unexpected. Suddenly, the line that differentiates it from a penny stock and a turnaround play is suddenly blurred. I was certainly not vested but pretty surprised by the sudden turn of affairs.

4) On hindsight, it is always obvious. In Actuality, I certainly have no insight on this outcome. I was merely a bystander looking at the titanic struggling to stay afloat. And watching it sink to rock bottom.

Most of the stock I purchased are mostly debt free except for Hyflux, another turnabout play in a boring and unexciting business, and SLA which gearing catapulted due to acquisition of 3 subsidaries related to its lines of business.

Margin call, Gearing and leverage is a scary thing especially for passive investors like me. Some of my REITS / companies I bought have gained me good returns, but unless there is clear evidence of the business growing sensibly, I will continue to tread cautiously and work from my circle of competence.