Ezion seen restructuring over US$1b in debts

Singapore'

MAINBOARD-LISTED Ezion Holdings is expected to table a restructuring plan soon for over US$1 billion in debts so as to ring-fence any new equity as the group ride out what may be the tail-end of a protracted offshore and marine (O&M) downturn.

Observers also pointed to fresh equity being needed to revamp Ezion's erstwhile profitable liftboat-focused business, now facing heat under excess capacity conditions.

Ezion has largely thrived on supplying refurbished and modified liftboats to oil and gas (O&G) clients at what were considered competitive contract rates. The group has managed to stay in the black through to Sept 30 2016, but its erstwhile thriving business now faces bottomline risk.

A report compiled by offshore brokerage KennedyMarr reflected an almost sevenfold expansion in the global operating fleet of liftboats since 2010 to 69, with 20 more under construction. This 69-strong fleet is struggling to contest against other marine asset classes for the same contracts.

David Palmer, chief executive of Pareto Securities Pte Ltd, noted that in recent O&G tenders, liftboats were often sandwiched between ship-shaped inspection, repairs and maintenance vessels and semi-submersible construction vessels. He also observed that, in general, liftboat owners-operators are not spared the pain of impairing assets on their fleet with asset valuations under pressure as a result of drastically lower daily operating rates.

While oil prices stabilising in the US$40-50 range has encouraged a revival of certain offshore O&G projects, Ezion and its peers need to keep their fleet working to stay relevant in the market. The group has previously indicated that capital expenditure had been set aside for fleet high-grading so as to put more assets to work.

Yet, what is complicating this high-grading exercise is the fast-ageing profile of Ezion's service rigs. Ezion has not responded directly to a previous BT enquiry on this matter, but an industry consensus is that significant capex is required for fleet modernisation, assuming the group's rigs were built over 20 years ago.

With fresh debt funding hard to come by for O&M players, Ezion is expected to turn to the equity market to fund its fleet high-grading exercise. One potential source of new equity will be private equity though Mr Palmer warned that these funding sources may come attached with aggressive terms that would seem unpalatable to existing company stakeholders.

To begin with, Ezion needs to seek buy-ins from its creditors and the group is said to have appointed audit and tax consultancy, RSM Singapore, as financial adviser (FA) for its outstanding liabilities, which stood at over US$1.6 billion as at March 31 2017.

Observers also expect the upcoming debt restructuring plan to be tabled by the FA to actively engage two major classes of creditors - noteholders and bankers, which account for over US$385 million and US$766 million of Ezion's total liabilities as at the end of Q1 FY17.

One legal expert further argued that given the 70:30 split between senior debt and outstanding notes on Ezion's books at the end of March, the group's noteholders stand to gain a louder voice compared to previous restructuring exercises for Singdollar denominated notes in the O&M sector.

Ashok Kumar, director of BlackOak LLC, noted that no one class or group of creditors can now cram down and force others to accept a plan unless a majority representing 75 per cent of the value of total debt of all classes of creditors are in support of the plan. This is one of the new provisions extended under Singapore's updated debt restructuring law.

But Mr Kumar suggested that noteholders need to stand as a galvanised group in order for them to gain a solid seat at the bargaining table.

Ezion has issued six tranches of Singdollar notes maturing in stages from 2018 through to 2021. DBS Bank, as the sole and joint bookrunner for all six tranches, has extended a committed funding facility for S$120 million of the issued notes.