Noble Group to subscribe for up to 15% of Atlas Resources’ IPO

The Investor Daily newspaper today reported that Noble Group is prepared to subscribe for up to 15% of Atlas Resources when it goes public. Noble Group had provided a loan to Atlas Resources on 27 Apr11, and the contract has an option to convert this into a 10.1% stake in the company; post listing Noble's stake would be diluted to 7%. According to the press article, Atlas' existing contract to sell coal to Noble would also be restructured such that Noble would become a marketing agent, which should improve Atlas' ASP.

For this, Noble would be compensated by US$25m, which will be paid from the IPO proceeds of an estimated US$100-175m. Lead underwriters for the IPO are Indo Premier Securities and UBS Indonesia. The offering period will take place between 21-25 Oct11 and listing date is estimated to be 31 Oct11.

Atlas is a coal producer operating in South Sumatra's Musi region. It is currently producing 1.5m MT and is expected to raise this to 4.5m MT next year. After 2013, there are plans to raise production to 10-11m MT p.a. Its reserves amount to 84m MT, while its resources stands at 330m MT. Atlas has 14 IUP within 185k ha of concession.

We believe this potential arrangement would add value to Noble. Besides additional associate income, the group would be able to recycle its capital as well as get US$25m cash by becoming a marketing agent, which we believe may fetch c.4% commission. Maintain BUY and S$1.70 TP.