Ezion in financial revamp, calls for trading suspension

Singapore

OFFSHORE and marine (O&M) group Ezion Holdings stopped short of acknowledging it has kicked off debt restructuring when it called for a trading suspension on Monday.

It said that discussions have been ongoing with stakeholders including bank lenders and other creditors regarding its financing and capitalisation structure.

This is taking place as the group that was once touted as a potential survivor from this O&M downturn, posted its third consecutive quarterly loss.

The group slipped into the red for the third reporting season in a row with a net loss of US$2.57 million for the second quarter ended June 30, a reversal from a net profit of US$8.14 million for the year-ago period.

Loss per share was 0.30 US cents compared to earnings per share of 0.38 US cents a year ago.

The group blamed lower charter rates and fleet utilisation for service rigs and offshore support vessels for a 19.5 per cent decrease in its Q2 revenue to US$67.38 million.

It recognised that the charter rates and fleet utilisation have faced significant depression. This suggests the service rig or liftboat-focused O&M player has not been spared the brunt of demand destruction and overcapacity triggered by the 2014 oil price crash, contrary to earlier projections from some equity analysts.

Instead, Ezion said that a protracted downturn has presented "many challenges" to its cash flow and it warned that if such adverse conditions persist, its business fundamentals will come under threat.

The group has seen its cash and cash equivalents almost halved to US$93.46 million as at June 30, 2017, on negative net cash flows from operating and investing activities, down from US$181.11 million a year ago.

Net cash from operating activities was negative US$2.35 million for Q2 FY17 as trade and other payables surged to US$30.50 million from US$3.58 million. This compared unfavourably to US$28.25 million in positive net cash from operating activities for Q2 FY16.

Not helping matters were significant cash outflows from investing activities. Advance payments for purchase of plant and equipment ballooned to US$16.17 million from US$243,000 while US$11.45 million more was pumped in as investments in an associate.

In the absence of US$20.4 million proceeds from disposal of assets held for sale during Q2 FY16, net cash from investing activities came up to negative US$40.31 million.

As at June 30, 2017, non-current assets were also lower at US$2.39 billion, down from US$2.45 billion six months ago, due to depreciation charges on plant and equipment and lower values in the group's joint ventures.

Net asset value per share 62.73 US cents at the end of June, lower compared to 63.43 US cents at the end of December.

Ezion said that it intends to work together with all its stakeholders to discuss financing options in order to ride through to the next sectoral upswing.

While industry analysts pointed to the liftboat business now facing intensifying contest from other asset classes, the group, as the biggest liftboat operator in Asia, said that it will continue to focus on maximising utilisation for this asset class. The aim is to put at least six liftboats or service rigs back to work by the end of 2017 or early 2018; but in order to do so, it calls for additional funding for rig deployment with cash flows under challenge from low charter rates and longer payment cycles for trade receivables.

The group is also concurrently exploring options to reorganise and improve fleet utilisation of its offshore logistics vessel division.

It indicated that initial responses from its principal lenders "appear positive" but details still need to be finalised.

"Some of the financial institutions appear to be extremely cautious in (funding) working capital and capital expenditure (in) this sector," it said.

Observers have noted in drawing precedents of financial restructuring in Singapore's O&M sector that Ezion may have to count on new equity injection but this is expected to call for maturity of both secured and unsecured debts to be pushed out further.

Successful O&M financial restructuring in Norway and the US involving new equity injections, have also been conditional on existing bank lenders and bondholders converting debt to equity or accepting severe haircuts.