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Ezra bites bullet, files Chapter 11 protection with US court

Company currently has about 17,000 shareholders; it also has S$150 million of outstanding notes due in May
Monday, March 20, 2017 - 05:50

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Offshore and marine (O&M) firm Ezra Holdings, once a stock-market darling, has chosen to go down the same path as its associate, Emas Chiyoda Subsea (ECS), and sought Chapter 11 protection with the US bankruptcy court - yet another victim of the prolonged and debilitating downturn in the sector.

Singapore

OFFSHORE and marine (O&M) firm Ezra Holdings, once a stock-market darling, has chosen to go down the same path as its associate, Emas Chiyoda Subsea (ECS), and sought Chapter 11 protection with the US bankruptcy court - yet another victim of the prolonged and debilitating downturn in the sector.

Ezra's holding company and two other entities under the group, Emas IT Solutions Pte Ltd (EMIT) and Ezra Marine Services Pte Ltd (EMS), submitted their Chapter 11 applications on Saturday to the United States Bankruptcy Court for the Southern District of New York, stating in court papers that Ezra has found it difficult to carry out fund-raising as an entity listed on Singapore Exchange (SGX) owing to the prolonged challenging operating environment in the O&G industry.

In a follow-up announcement on SGX on Sunday, Ezra said the Chapter 11 filing "is intended to optimise the scope and extent of the restructuring options available" and "to protect the interests of all stakeholders . . . including creditors and shareholders".

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Ezra's problems are not new as the market has known of its difficulties for many months. Most recently, on Feb 3, Ezra disclosed a potential US$170 million writedown tied to its interest in ECS. This followed two Jan 31 announcements from Ezra's partners in the ECS joint venture (JV), Chiyoda and NYK Line, detailing 51 billion yen (S$634 million) in combined writedowns for their respective equity and loans to the JV.

The ECS writedown was in addition to US$370.3 million impairments and provisions Ezra made in Q4 FY16, which dragged the group into a massive net loss of US$339.6 million and saw its equity to controlling interest plunge to US$232.98 million against over US$1 billion of short-term debt on its books.

In noting the deterioration in its FY16 financial statement, Ezra had warned against "going concern issues". Furthermore, as an OCBC Credit Research note issued before the Sunday announcement suggested, ECS's US bankruptcy filing on Feb 28 exacerbated the plight of the highly geared holding company.

So it was that Ezra's Sunday disclosure and its March 18 bankruptcy filing flagged accelerated legal proceedings against the holding company on claims linked to corporate guarantees extended in support of ECS.

Ezra's court filing further said two statutory demands from Svenska Handelsbanken AB (Publ), Singapore branch and Forland Subsea AS have since expired under Singapore law. This extends the two creditors the liberty to commence winding-up applications against the holding company.

Robson Lee, partner of law firm Gibson Dunn, in pointing to the developments since ECS's Chapter 11 filing, noted that the writing may have been on the wall for weeks now that the holding group "as a mothership with all group companies under its stable . . . needs to seek legal shelter to pre-empt inundations of litigations from the creditors".

In this respect, Ezra and its subsea associate ECS have taken a different route from Swiber Holdings, another erstwhile darling of Singapore's stock market, which entered into judicial management through an application with the Singapore court.

Ezra had said in its Sunday SGX disclosure that its Chapter 11 application is intended to "expand rehabilitation options to preserve value for all stakeholders of the group".

Legal experts had also identified the "debtor-in-possession financing" as a key characteristic of US bankruptcy code, which provides debtor companies more flexibility in prioritising financial resources for the purpose of rehabilitating their businesses over repaying their liabilities.

ECS is widely believed to have sought Chapter 11 protection to ring-fence US$90 million new funding from Chiyoda and Subsea 7.

While Ezra could be also seeking to protect whatever financial resources it has on the books, Mr Lee of Gibson Dunn said stakeholders may take comfort from media reports suggesting that with group "net assets exceeding net liabilities", there exists "a prospect of rehabilitation".

Court filings obtained by BT show Ezra had declared estimated assets of between US$500,000 and US$1 billion against estimated liabilities of between US$100 million and US$500 million.

The documents showed DBS Bank and OCBC Bank have over US$47 million secured claims each against Ezra; UOB ranked at a distant third with over US$10 million secured claims against the holding company. In addition, OCBC is listed as the only secured creditor with over US$26 million claim against EMS.

The three local banks also made Ezra's creditor list for its 20 largest unsecured and contingent claims: DBS with over US$280 million, OCBC with in excess US$200 million and UOB with under US$23 million. Ezra also has S$150 million worth of outstanding notes, the principal of which is due for redemption in May.

SGX has called on Ezra to convene a meeting with noteholders, to which the company said it will comply. The exchange also said it will write to holders of the notes which are custodised with the Central Depository (CDP). Investors whose notes are not held directly via their own CDP accounts but through nominee accounts are advised to contact the nominee directly.

SGX has also compiled details of these noteholders and will make them available to the trustee of the note issue, HSBC Institutional Trust Services (Singapore) Ltd.

The Securities Investors Association (Singapore) has been informed of the development and invited to participate, together with its legal advisers, in the arrangements put in place for noteholders.

Ezra's court filings showed the holding company has issued in excess of 2.9 billion shares of publicly held stock in Singapore that were held by about 17,400 persons or entities.

The group has two other listed entities on the Singapore bourse, Emas Offshore Limited (EOL) and Triyards. EOL had gone on a trading suspension since March 6 while its holding company entered into its latest trading halt on March 15. Triyards is the only counter still trading on SGX as at press time.

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