Ezion cautiously optimistic over its refinancing proposal

EZION Holdings is cautiously optimistic about getting noteholders approval for its refinancing plans as it points to recovery in its core liftboat business, said its financial adviser.

Having held some initial meetings with different groups of noteholders which resulted in a revised version of the proposed refinancing, the company is "cautiously optimistic", said Chio Kian Huat, RSM Corporate Advisory senior partner. RSM is advising on the proposal.

The group is viable, said Mr Chio on Tuesday at a media briefing.

Revenue has declined due to reduced charter rates and utilisation rates but despite the current depressed market the group got US$136 million revenue in H1 2017.

There is still positive cashflow from operations but the debt level is not sustainable; the refinancing puts the group on a sustainable level, he noted.

In the last 18 months, the cashflow of US$170 million was insufficient to meet the financial obligations to lenders and capital expenditure, resulting in a net outflow of US$207 million.

"Some customers were late in payments ... while suppliers insisted on cash payment upfront, or faster payment," said Paul Goon, Ezion deputy chief financial officer.

The positive news is that its core liftboat business is seeing recovery, he said. "We are seeing an upward trend on liftboats."

The current liftboat daily charter rate is about US$29,000. At the peak in 2014 and 201, it was US$90,000.

But new daily charter rates are fetching a 50 per cent increase and the company just this week secured a new daily charter rate for one of its liftboats at about US$45,000, for six months to one year. The new contract starts in a few days, he added.

Ezion has 14 liftboats including two under construction, and is the largest liftboat operator in Asia and the second-biggest in the world, he said. The largest operator has 15 lifeboats.

"The liftboat is our core competent strength," he said.

"Our outlook is positive because all contracts are being negotiated and there's higher demand than supply," said Mr Chio.

Liftboats are used in the maintenance of production platforms; maintenance programmes which had been deferred for the last two years are restarting.

Liftboats are chartered mainly by oil majors which are concerned about safety and pollution risks and in fact only work with pre-qualified liftboats operator.

Ezion is the only qualified liftboat operator in Asia. Liftboats provide a stable work platform for offshore services, making them generally safer and more efficient than workboats or tugs. The design of the liftboat allows offshore operations in harsh weather conditions.

According to Mr Goon, in the US only liftboats are allowed near production platforms. But refinancing has to be completed first to reduce the cashflow drain, he pointed out.

Total interest payments including to noteholders and banks in 2016 was close to US$70 million a year. Under the proposed refinancing interest payments would drop to US$23 million a year. Lenders which are mainly banks have agreed in principle to reduce interest cost by US$30 million per year subject to noteholders supporting the refinancing plan.

There will be a town hall with noteholders on Nov 2 to explain the refinancing; in addition, from Nov 6-14, RSM representatives will hold clinics every night to address any questions of noteholders, he said.

Ezion has sweetened the proposals for holders of S$575 million of medium-term notes and perpetuals ahead of a consent solicitation exercise (CSE) for Nov 20.

The group has total debt of US$2 billion.