By OH BOON PING
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SHARES of Noble Group rallied yesterday following news of a US$850 million capital injection by China Investment Corp (CIC) early this week.
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The counter, which resumed trading yesterday after a trading halt for the signing of a definitive placement agreement, surged to a day-high of $2.60 before closing the day at $2.48 - up 18 cents.
Some 90.9 million shares changed hands.
CIC is acquiring a 15 per cent stake through separate deals involving 438 million new shares and 135 million vendor shares.
The net proceeds for Noble from its placement new shares at $2.1137 each are estimated at US$642 million. The group expects to use the money to pursue strategic investments in key agricultural markets globally.
In a report, DBS Vickers said the CIC investment 'is a vote of confidence for the group's position as a global supply chain manager and a strategic asset'.
'Following the placement, Noble's net gearing is forecast to drop to 35 per cent from 87 per cent in 2Q09. This, and the potential listing of Glencore (a competitor), are near-term catalysts for Noble's share price to move higher.'
DBS issued a 'buy' call and a target price of $2.80.
Macquarie Research thinks that the reduced gearing and improved debt costs give Noble plenty of working capital for its core operations and long-term capital for merger and acquisitions.
'Noble should now have cash levels in excess of US$1.4 billion, and it will also enjoy better rates when it next issues fresh debt on account of its improved credit rating from S&P last week,' wrote analyst Patrick Yau, who has an 'outperform' recommendation and a $2.80 price target.
Furthermore, CIC's investment cements Noble's presence in China, where tremendous growth potential exists, and paves the way for more investment opportunities, says OCBC Investment Research, which targets $2.67 on the stock.
Mr Yau said that 'Noble gains a 'steady' customer, as China is already a big consumer of things that Noble supplies (e.g. soy beans, iron ore)'.
He believes that Noble can also gain further access to capital for buyouts later.
On top of the synergistic benefits, analysts are generally upbeat about Noble's prospect, citing a build-up in capital expenditure as a key factor to fuel higher growth.
'Noble is currently expanding its soybean crushing capacity in Argentina, ramping up coal production from Indonesia and Australia, and increasing sugar refinery capacity in Brazil,' said DBS.
These and other facilities under construction will contribute to Noble's volume growth over the next three years.
'Higher commodity prices (in line with global economic recovery) next year should boost profitability further, in our view.'
Noble Group took a hit when commodities slumped following the global financial crisis.
Revenue for the first half of this year fell 33 per cent to US$13.26 billion, although net income rose 17 per cent to US$340 million, in part from a one-time gain.
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