Rebound in Ezra seen to be fleeting as oil industry woes deepen

[SINGAPORE] Ezra Holdings Ltd is leading a rebound among Singapore oil-service providers this month, after bearish bets pushed the company's shares to all-time lows. The rally will be short-lived amid deepening financial distress in the industry, analysts say.

Ezra has surged more than 40 per cent in September, and oil-related companies including Ezion Holdings Ltd and Vard Holdings Ltd represent the top five gainers on the 129-member FTSE Straits Times All-Share Index for the month.

Traders are probably speculating Ezra will get the funds needed to refinance maturing debt after it held talks with lenders, and also covering short positions, said Joel Ng, an analyst at KGI Fraser Securities Pte Ltd in Singapore.

Slowing trade and a 50 per cent plunge in crude prices in the past two years have made casualties out of related companies - from energy-services providers like Ezra to rig-builders such as Sembcorp Marine Ltd - forcing them to restructure debt, post losses or idle some facilities. Since Swiber Holdings Pte Ltd applied for a court-supervised rescue in late July over its inability to pay debt, several energy-services companies have asked creditors for leniency, and S&P Global Ratings said the group remains the sector most vulnerable to financial strain.

"The operating environment remains tough," Mr Ng said by phone. "There's really no fundamental support for the rally."

Rockier days may be ahead. Customers of these services providers, including oil explorers such as Royal Dutch Shell Plc, are reducing spending or delaying projects. In Singapore, shipping and other logistics firms face a record US$1.68 billion in note repayments in 2017, according to data compiled by Bloomberg.

"We do not believe current oil prices can justify a sustained rally in this sector," Tariq Ali, an investment strategist at Standard Chartered Bank in Singapore, said in an e-mail.

"Our outlook for oil is one of a very gradual rise in prices, which is not a strong reason to turn constructive on the sector."

When contacted by e-mail for a comment on trading activity, Ezra referred to its earlier response to the stock exchange. Talks on possible fund-raising have progressed and drafts on term sheets have been shared with counterparties, the company said Sept 9. Ezra has yet to enter into any definitive agreements, it said at the time.

Ezra had US$825.4 million of borrowings consisting of bank loans and bonds on May 31, according to its latest accounts. About US$194 million of bank loans is due within one year, while its solitary bond of S$150 million matures in April 2018.

Marco Polo Marine Ltd, a provider of barges and tugs for coal, steel scrap and iron ores, said Sept 22 it's asking bondholders for approval to extend the maturity of S$50 million of securities due in October by three years.

Rickmers Maritime, an operator of container ships, is asking creditors for leniency on about US$253 million of borrowings due in 2017 to avoid potential liquidation or judicial management. That includes converting some of the S$100 million bonds into equity.

The industry's woes have prompted some offshore and marine companies to lobby to pool their debt and ask the Singapore government to "backstop" these loans so local banks, which have turned more cautious after Swiber's filing, would be more willing to lend, The Business Times reported Sept 22, citing unidentified people in the industry.

For investors able to stomach volatility, the rewards could be generous. Ezra remains the second-most shorted stock in Singapore, behind Noble Group Ltd, but the downside risk looks limited at the current share price, according to Mixo Das, a strategist at Nomura Holdings Inc.

Ezra's stock trades at about 0.2 times the value of its assets now, while it traded at par on average in the past 10 years, data compiled by Bloomberg show.

"The risk reward looks favourable," Mr Das said. "If something goes wrong, maybe you lose a third of your money but if it works out then the stock doubles." Investors will be watching closely for signs of strain in other oil-related companies.

In August, Ezion Holdings, a provider of offshore vessels and services, cut its previously reported second-quarter profit by more than half after taking impairment charges from an associate company.

Energy producer KrisEnergy Ltd said Aug 14 it was exploring equity issuance, refinancing and asset sales as its debt covenants may come under stress amid the industry slump.

"It's a worrying trend that more and more of these companies are showing signs of distress," Jen-Ai Chua, an analyst at Bank Julius Baer in Singapore, said by phone.

"It's still too early to say that we've seen the bottom. It will probably take another one to two quarters."

BLOOMBERG